Since launching nReachOne as the pioneering “Balanced 12J Fund”, we now (more than ever) observe the benefits that diversification offers.
Slow economic growth, a disappointing geopolitical environment and volatile markets look to continue into 2020. With this continued weak economic backdrop, many South African investors are “losing faith” in conventional investment assets, resulting in noticeable growing popularity of alternative asset classes.
Arguably one of the best alternative investments currently available to South Africans is the “Section 12J” offering due to the tax relief provided for by the act. Since alternatives are uncorrelated to conventional investment assets; adding them to your portfolio; will provide broader overall diversification, reduce volatility and enhance your returns.
The evidence of risk mitigation through diversification is overwhelming and within the alternative investment space, we remain true to be a balanced and well-diversified “Section 12J” Fund.
Breaking News
As a highly sought after Category II asset manager, nReachOne and Capitis Equities are finalising a collaboration, with an intent to merge, that will see one of the largest Venture Capital collaborations in South Africa with >R325 million assets under management (AUM).
This collaboration provides massive benefits to all stakeholders and will henceforth be branded as nReach I Capitis collaboration. This collaboration transaction of S12J asset managers is one of the largest in South Africa’s fast-growing S12J industry, with AUM ranking under the top-5 & already managing an investment portfolio of 22 diversified S12J investments across various asset classes and sectors.
Other important news: In addition, we have experienced tremendous success with the launch of our “Enterprise and Supplier Development Fund” (ESD Fund) for SA’s Corporate Black Economic Empowerment-scorecard investors. We consider the BEE Fund to be our flagship Fund, as our corporate clients already benefit full recognition of the maximum number of points on the B-BBEE scorecard (15 points – 5 points ED; 10 points SD & with 1 potential bonus point).
Industry News
The VCC/12J industry as a whole has experienced phenomenal growth and the number of SARS registered S12J companies now reached 177 with total Assets under Management (AUM) at roughly R8,6 billion. It, however, remains an alarming fact that only +R3,5 billion of these investments are deployed….
Legislative changes:
Regarding immediate tax benefits received, SARS announced the new annual limits to a 12J investment on 30 October 2019. In layman’s terms, the following caps have been introduced with a retrospective effective date of 21 July 2019. These caps/limits refer to the maximum “expenditure incurred” allowed to be claimed in a specific year of assessment (every tax year):
- R 2,500,000 for Individuals and Trusts
- R 5,000,000 for Companies
- Apart from the final clarity on investment limits allowed in any specific tax year, the following additional amendments are effective 21 July 2019:
- At no time can a VCC hold more than 69.9% of any underlying qualifying Company’s shares (controlled group company). The test is not just at the end of any year of assessment.
- VCC’s now have 48 months for the deployment of investor capital into qualifying companies, instead of the previous period of 36 months.
From a nReach | Capitis perspective, this is quite alarming as many S12J’s already struggled with deployment of investor funds – this might be good news for such S12J’s, but not for the investors as they will experience poor returns and the “idle capital” will not create jobs and stimulate the economy. nReach | Capitis has a proud record of deploying all capital within 45 to 60 days, due to our deep “investment pipe-line”.
The Fund
In the bi-annual newsletter we show investors how we compare against ‘conventional investments’ as reported by Morningstar*. As already mentioned before, it is evident that many 12J’s are struggling with the deployment of capital and we therefore pride ourselves on the deployment of capital growth funds received within 60 days and fixed income funds are deployed within 45 days.
*Morningstar rates funds from 1 to 5 stars based on how well they’ve performed (after adjusting for risk and accounting for sales charges) in comparison to similar funds in the industry.
Quick Fact Sheet
Our combined qualifying company portfolio
nReach | Capitis News
General
The shift towards investing in alternative assets is not only in South Africa, but a worldwide growing trend. The main benefit of including alternative asset classes in your investment portfolio, is to have sufficient diversification to reduce risk and enhance returns.
As with any investment, the returns that our S12J achieve are not guaranteed, but will most likely be significantly higher than traditional investments, should the current trend of yields perpetuate, because the nReach | Capitis Funds are conservatively managed within a “high-growth” environment.
As it is more difficult to disinvest from alternative assets, investors are generally compensated with higher returns, known as the “liquidity premium.” Again, you are in good hands because our team comes from a private equity background. Our team has huge experience in picking the ‘right jockey and business’. Collectively we have +30 years’ experience in private equity and asset management, done +30 acquisition events and +20 liquidity/exit events.
We would like to encourage investors to provide us with feedback, which we can use to improve our product offering. We appreciate all feedback from our investors.
