Also, please read this message from Amit Bouri, Co-Founder and CEO of the Global Impact Investing Network.
Cash Management Fund
Purpose and Role in Investment Portfolio
The Cash Management Fund is designed to generate high yields at a risk to capital similar to Money Market Funds. However, to generate high yields, short term liquidity becomes more constrained.
The role of the Cash Management Fund in the investor portfolio is to achieve higher returns on core or investment cash holdings. Examples would be a pensioner who depends on their cash investment to generate income and where the investor needs minimal risk to investment capital. This Fund is also suitable for company cash reserves.
The Fund is not suitable for cash that is needed on a day-to-day basis such as working capital.
Capital Protection
The Cash Management Fund is fully capital protected through the use of collateral to secure the capital of the fund. Funds will never be applied to unsecured activities.
In general:
Activities that the fund focuses on include Trade Finance (fully secured) and Body Corporate Finance (fully secured). In the event of default, IIM can call on the security to cover both the finance principle and also the agreed interest rate. Our experience is that yields of 18% and 20% are easily obtainable under current circumstances despite the fact that the SARB has cut the Repo rate to 3.5%.
Default risk is mitigated through the IIM Capital Protection Fund.
As part of the finance process, we focus on the quality of the collateral as well to ensure that there is no decay under current economic conditions of widespread business shutdowns and economic contraction.
More Specifically:
IIM has a Section 12J investment offering to their clients. IIM has raised an investment commitment of R131million from their S12J investors.
The unique funding opportunity is the time delay between the investment commitment to the actual receipt of the tax investment refunds from SARS. For 2020, SARS shifted the Tax Season date from 01 July 2020 to 01 September 2020. These are funds that will be received – the S12J certificates have been issued – and S12J has been operating seamlessly as a SARS incentive mechanism for the past 11 years.
The delay between the investment commitment and actual receipt of funds can be funded for the benefit of the Cash Management Fund. The delay in the opening of the Tax Season this year has merely exacerbated the S12J funding conundrum where projects need funding sooner than the receipt of the investor funds. This provides a continuing opportunity for the Cash Management Fund to bridge that gap.
There is sufficient capacity in this ecosystem to deploy Cash Management Funds and continue to achieve the historic track record of around a net 13%.
This is a highly controlled low risk environment for the Cash Management Fund. Default risk and risk to capital is close to zero. IIM is able to fully manage the risk in that we have full control over the inward receipt of investment into S12J Qualifying Companies under our control. The return stability and surety is enhanced through funding the S12J operations.
Covid-19
The current set of health and economic circumstances have so far not had a negative impact on IIM. We operate in a unique investment space within the Section 12J environment, which is relatively unaffected by the measures taken to curb the spread of the virus. The biggest risk to this business probably lies with the potential size of the investment pool. Taxable income is likely to fall on aggregate. However, the demand for projects remains high and the S12J tax incentive is underutilized and in no danger of being saturated.
Summary
The Cash Management Fund has an established track record and has proven its mandate to achieve strong returns with low risk to capital. The S12J environment has provided an additional deployment opportunity for the Cash Management Fund where the risks are tightly controlled, and default risk is near zero. Yet at the same time, the cash return of around 13% is expected to be maintained. Return surety is also strengthened.
The mandate of the Fund is to achieve high yield returns but with minimal risk to capital.
Team Impact
As an impact investment company, Impact Investment Africa focuses on investments that, along with generating financial returns for investors, seek to achieve a positive and measurable socio-economic or environmental impact. This includes investments into SME growth companies, education, medical, aviation, agricultural projects, manufacturing, information technology and private property development with a focus on affordable housing.
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