impact investment africa section 12j and institutional...

Impact Investment Africa

Section 12J and Institutional Investment Opportunities

Chris Hart

Executive Chairman

Impact Investment Africa

2019/2020

Enriching lives through opportunity

Impact Investment AfricaAgenda

.

The Phenomenal Section 12-J “Secret”

Unique Institutional Investment Offer

Importance of Impact Investing

Strong Projects and Further Action


.

Impact Investment Africa – What We Do

IIMServices

Asset Management:Pension Funds

Institutional Investors

Cash Management:Enhanced Yield

Low Risk ZAR; BWP; $

Section 12-J:Tax-Efficient Investing

Legitimate Tax Avoidance

Second Jurisdiction:ExpansionRelocation


Impact Investing:Socio Economic Solutions for investors

under pressure to invest in the SRI space

Smart Structuring:Meeting regulatory obligations

by lowering costs and improving effectiveness

Botswana HQ:Pan-Africa

.

Venture Capital

InvestmentProposition

S12J Tax Break

High Tax Context

Increases Tax-Planning Flexibility

A Financial Planning Option that has to

be Considered

An Investment Option Every High-Tax Paying Investor Should Consider

Investment Period: 5 Years

Full write-off against income tax

Individual (45%) and Company Tax (28%)

.

S12J – An Extreme Tax Break


.

Do Nothing

R1 000 000

Becomes

R550 000

After Tax

Invest R550 000 in Money Market:

6.50% taxed at 45%

After Tax ERR: 3%

Invest in an IIA Section-12J

R1 000 000

Is kept in full –

Tied Up for 5 years.

Assured Exit

Reliable and regular dividend stream of 12% to 15%

on the full R1 000 000 .

After Tax ERR: 25% to 28%

A minimum of full nominal capital returned net of

current CGT

The Tax Effect of Section 12-J: IndividualsR1 000 000 of pre-tax income


Investor does not pay fees. Fees paid by investee company.

R550 000After Tax Capital

R1 000 000Pre-Tax Capital

Do Nothing

Section 12-J Turbocharged Returns

S12J – Effect on Capital and Income for Individuals


R19 700 per annumAfter Tax Income

R1 000 000After Tax Capital

R96 000 – R120 000 paAfter Tax Income

Invest in IIA S12-J


Section 12-J Tax Table

Investment Amount(R000)

Taxable Income(R000)

Tax Liability(R000)

Tax Saving(R000)

0 4 000 1 657 0

1 000 3 000 1 207 450

2 000 2 000 757 900

3 000 1 000 327 1 330

4 000 0 0 1 657

Tax avoidance approved and designed by SARS that SARS wants you to take

.

Do Nothing

R1 000 000

Becomes

R720 000

After Tax

Invest R720 000 in Money Market:

6.50% taxed at 28%

After Tax ERR: 4.6%

Invest in an IIA Section-12J

R1 000 000

Is kept in full –

Tied Up for 5 years.

Assured Exit

Reliable and regular dividend stream of 12% to 15%

on the full R1 000 000 .

After Tax ERR: 23% to 27%

The Tax Effect of Section 12-J: CompaniesR1 000 000 of pre-tax income


R720 000After Tax Capital

R1 000 000Pre-Tax Capital

Do Nothing

Section 12-J Turbocharged Returns

S12J – Effect on Capital and Income for Companies


R33 700 per annumAfter Tax Income

R1 000 000After Tax Capital

R120 000 – R150 000After Tax Income

Invest in IIA S12-J

.

The IIA Section 12-J: Additional Benefits for Companies

RegulatorySolutions

BBBEEScorecard

SRIObligations

EnvironmentalLegislation

Educationand

Training - ETI

Compliance: lowering costs; increasing effectiveness; Smart Structuring


Turnkey SolutionsReleasing management attention;Effective, meaningful compliance

Bespoke DesignEssential to work with

rating/assessment agencies

EDETISDOwnershipY.E.S. ……

Converting Costinto an income-producing asset

.

Our S12J Investment Characteristics

The investment is designed to behave almost like money market

Y0 Y1 Y2 Y3 Y4 Y5

CapitalOut

12% - 15% Dividend StreamUpside Participation

CapitalBack Y5/6

Capital is returned net of CGT at a minimum.

The investment case has been constructed so that it stands on its own and is a competitive investment offering even without the S12J tax break.


Expected Rate of Return25%-28%

ERR 15% to 18% for Green/Brown-fieldProjects


IIA Investment Offering: Features

ScalableValuationLiquidity

Collateralizable

Assured ExitRobust

Investment Case

IIA FundFeatures

Investment case is

not dependent on the tax break

Impact Benefits:BBBEE,

Carbon CreditsHigh Impact

Risk/ReturnCapital protected

Reliable, enhanced Income

Value Add

Assumes 6-Year Investment and return of nominal capital as a special dividend net of taxes

IIA Section 12 J ERR Calculations – After Tax

.


Dividend YieldInvestment ERR

Before S 12 JS 12 J Overlay

45% TaxS 12 J Overlay

28% TaxAlternatives:

JSE, Bonds, MM

10% 10% 22% 21% JSE All Share: 11%(3% DY, 10% annual capital gain)

12% 12% 25% 23% ALBI: 4.5% (Bonds)

15% 14% 28% 27% Money Market: 3%

18% 16% 32% 31% Inflation: 7%(5% - Net effect of 20% Dividend Tax)

Section 12J Overlay will beat almost all other investment options substantially after tax


.

The Phenomenal Section 12-J Secret





.

Portfolio Role

Product DesignValuation and Risk

Liquidity

Investability

Suitability

Legislation: TCF, Reg 28, FAIS …….

No silver bullets. Asset class combinations help to meet

investment objectives.

The investment must compete with other asset classes

The ability to exit can be more important than entry

Investment that demonstrably benefits members and their communities

Product Design – Departure Point


.

Investment Process

Commercial Merit

People Risk Technology


.

Return

Risk (Volatility)

Cash – IRR 3%

Bonds – IRR 4.5%

Property

EquitiesIRR 11%

PrivateEquity

VentureCapital

S12J

IIA Fund Minimum Target: 12%

With CapitalProtection

We aim to occupy a unique space with in the Risk-Return spectrum:Enhanced, Risk-controlled Returns

Asset Classes: A Choice Between Risk and Return


.

En • Enhanced

R • Risk-controlled

R • Returns:

Enriching Lives Through Opportunity

I • Investment for

C • Change and

H • Hope


.

Cash Management

Investor Entry Point

Target: 1% to 2% above benchmark

Benchmark in SA is STEFI

Capital Protection

Fee Derived

Also

Investable

Target: CPI + 7%

Equity-like returns. Loss is possible

We offer fund solutions that enhance the risk-reward profile of an overall portfolio

Fund Offering: Entry Mechanism – Botswana & SA

Offering in both Rand and Pula (Also $ in Botswana)


.

AgriCash Fund

Investment into high-tech, high margin, cash generative agricultural projects

Target: 12% - 15%

Better than cash and bonds; Capital protected

SME Growth Fund

Investment into SME’s with high growth potential with the right combination of

technology, strategy and capital

Target: 12% to 15%

Better than cash and bonds; Capital protected

Also to follow: Mortgages and asset backed finance

Fund Offering: Operational

Offering in both Rand and Pula



.






.

Impact Investment in VCCs - Elements and Criteria

InvestmentCriteria

4th IR Technology:Margin

Sustainability

Scalability:Repeatable Business

Model

Risk:ManageMitigate

People:CapacityIntegrity


Impact:Smart Structuring: lower regulatory cost

but increase effectiveness

Investment Characteristics:High margin

Strong Cash Flows

VCC investment derived from our institutional projects – similar risk and costs


Risk: Many “Mythconceptions”

Volatility Inflation

Cash Low High

Equities High Low

THERE IS NO SUCH THING AS A “LOW” RISK INVESTMENTBut

Risk Reduction is Possible Through Mitigating and Managing

Risk is an

opportunitythat must be

managed and

mitigated

Riskhas many forms:

VolatilityInflation

GeopoliticalSociopolitical….

.

Most Venture Capital Investments: Off the Charts Excitement

…the failure rate is notoriously high – by experience

Careful Evaluation:Track Record

Current OpportunitiesManager Skill & Ability

Surprise

5 Years

Valuation Pricing Liquidity

Investment Black Box

???!!!


CAGRIRR

(after Tax)

10% 18%

12% 20%

15% 23%

18% 26%

.

Impact Investing: Alternate to Private Equity and Venture Capital

Capital MakingA Difference

Patient Sufficient

Non-rapacious

Commercial Merit, Controlled Risk:Multiple mutual benefits

Tailored for Project Efficiency

Appropriate Investment Timelines

Designed to enhance success for all parties


Meeting the Investor Promise:

Return on Capital;Return of Capital


.






.

S12J: Investment Categories

S12JOpportunities

Existing OperationsCash Generative

Proposed ProjectsPrototypes

High Impact Sectors:• Job Creation• Food Production• Housing• Education

Strong Investor Benefits• BBBEE• Supplier Development• Carbon Credits

Opportunities reflect different return and

sectoral risk profiles to meet different investment

objectives

• Lower Risk• Institutional Suitability• Measured Returns• Proof of Concept Exists

• High Potential Upside Projects• Higher Risk; Higher Return• Late Greenfield/Early Brownfield


Existing OperationsCapital Growth

• Higher Upside• Longer lead time to cash• Measured Returns• Proof of Concept Exists

.

IIA Investment Structures

Our S12JOpportunities

Focused VCCs Pooled VCCs

.

• Specific Projects• Targeted Risk• Well Defined Other Benefits

such as BBBEE, SRI etc

• Multiple Projects• Diversification of Risk• Opportunistic


Designed to offer strong dividend income with capital protection

SME Growth Focus:• Education• Technology• Media

Impact Empowerment Ventures (PTY) Ltd

Housing Focus:• Low Cost Housing Units• Student Accommodation• Hospitality Accommodation• Commercial Community Centers

Impact Housing Solutions (PTY) Ltd

Energy Focus:• Solar Energy;• Coal Pelletisation;• Biomass Power Generation

Impact Investment Power Tech (PTY) Ltd

Agricultural Focus: • Intensive Small Livestock Farming;• Controlled Environment Farming

Impact Investment Agri Tech (PTY) Ltd

IIA Section 12 J Investment Offering


Pooled VCC

Relative risks and benefits between the IIA VCC’s

IIA Section 12 J Investment Characteristics


S 12 J Opportunities RiskBenefits: BBBEE, SRI

Carbon Credits

Intensive Small Livestock Farming

Controlled Environment Farming

Solar Energy

Biomass Power Generation

Education/Franchising/Shopping Centers

Impact Housing Solutions (PTY) Ltd

Investor 100% Invested

Underlying Project Pays the

Fees

.Enriching lives through opportunity

Fees: Investors Pay No Fees

Aligns:

Investor, IIA, Underlying Project

Commercial Merit:

Contributes to project evaluation

Performance:

Investment measured on

100% of capital

.

Do Nothing

R1 000 000 Becomes R550 000

(After Tax)

Money Market Income:

R18 900 per annum

(After Tax)

Invest in IIA S-12J

R1 000 000 Is kept in full

Invest for 5 years; Assured Exit

Targeted dividend yield: 12% - 15%.

R96 000 – R120 000 per annum

(After Tax)

Recap of The Tax Effect of Section 12-JR1 000 000 of pre-tax income


.Enriching lives through opportunity

Section 12JPension Funds

PayrollCorporate Cash

Companies: Multiple Benefits and SolutionsIntelligent Structuring for Regulatory Obligations

B-BBEE Solutions

CSI Obligations

Employment

Y.E.S

Staff Benefits

Carbon Credits

Tax Reduction

Retrenchment Solutions

Turning Liabilities into Assets and RoI

.

Thank You

Chris Hart

Financial Market Economic and Business Strategist

Executive Chairman: Impact Investment Africa

[email protected]

[email protected] 480 8634


mailto:[email protected]

mailto:[email protected]


This presentation was prepared exclusively for the persons to whom it is addressed. This presentation is private and confidential and unauthorised distribution or copying is prohibited.

The content provided in this presentation is not an invitation to the public to subscribe for securities, nor does it form the basis of any contract or constitute the provision of investment,

financial, tax, B-BBEE, legal, accounting and/or any other advice. For advice on these matters and before making any investment decision, we recommend that you consult your preferred

relevant advisers. This document does not contain all the information that you may require, nor is it intended to replace any form of financial, legal or technical due diligence.

The primary purpose of this presentation is to present an investment opportunity to investors in an alternative asset class that offers potential significant returns on capital invested. Some

statements in this document are forward-looking and involve risks and uncertainties. These generally include statements regarding future financial positions, prospects, growth in markets,

projected costs, estimates of capital expenditures and plans and objectives of management for the future operation of Impact Investment Africa, Impact Investment Management or the

various venture capital companies managed by Impact Investment Management. The actual performance could differ from these forward-looking statements.

While all efforts have been made to ensure the accuracy of the information provided in this presentation, neither it nor any of the information contained in it has been independently verified,

and neither ATEV nor the Investment Manager gives any guarantee, representation or warranty, whether express or implied, in relation to the accuracy or completeness of the information, or

that reasonable care has been taken in compiling or preparing the information. We recommended that you perform your own due diligence so as to consider the proposal in the light of your

specific circumstances.

Impact Investment Africa (Pty) Ltd is a licenced non-banking financial institution, authorised as an asset manager by the Non-Banking Financial Institutions Regulatory Authority in Botswana: NBFIRA 10/3/8/I Impact Investment Management (Pty) Ltd is an authorised representative of etfSA Investment Services, a category II financial services provider authorised in terms of the FAIS Act: FSP 40107The VCCs mentioned in this presentation are all authorised financial services providers in terms of the FAIS Act and approved venture capital companies in terms of section 12J of the Income Tax Act, with the following FSP and VCC numbers:

Impact Investment Agri-Tech FSP: 49240 VCC-0118Impact Empowerment Ventures FSP: 49377 VCC-0135Impact Housing Solutions FSP: 49379 VCC-0130Impact Investment Power-Tech FSP: 49375 VCC-0127

For more information on the VCCs mentioned in this presentation, refer to the relevant VCC’s private placement memorandum (PPM) that is available on our website www.impactinafrica.com.

Disclaimer

http://www.impactinafrica.com/

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