Ashburton Investments launches world’s first inflation-linked, green debt investment

Ashburton Investments, the asset management arm of the FirstRand Group, recently concluded the first close of a green debt initiative comprised of debt arising from infrastructure projects under the South African Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). 

In a world-first, the mandate is to source only inflation-linked (South African Consumer Prices Index or CPI) debt emanating from these projects. 

Shalin Bhagwan, head of fixed income said that “by investing in Ashburton’s Renewable Energy CPI-linked Debt offering, South African institutional investors can expect to earn real yields of approximately  four per cent a year  before fees and with lower volatility than many other funds targeting a similar level of real return. Investors that follow a liability-driven investment strategy, including defined contribution pension funds who wish to target a minimum real income in retirement, should find value from including this asset class as part of their broader strategy.   

"Moving beyond pension funds, this asset class may hold advantages for long-term insurers wishing to benefit from the so-called matching premium adjustment that arises under the new insurance regulatory regime known as Solvency Assessment and Management (SAM). With a R1-billion  commitment from the first investor, a major South African insurer, we have made a good start towards raising a targeted amount of R3-billion for this initiative.”

Bhagwan also said that compared to other funds, Ashburton’s mandate is to target debt instruments where the contractual commitment, to pay CPI-linked returns, is directly with the borrower. This makes the investment less risky when compared to funds that use derivatives to synthetically replicate CPI-linked returns.

Investors obtain diversified exposure to South African REIPPPP debt across a range of technologies including solar photovoltaic, onshore wind, concentrated solar power, hydro and biomass. This presents a unique opportunity for institutional investors to finance REIPPPP projects alongside SA banks, which have so far provided the majority of the senior debt into the projects.

Corneleo Keevy, portfolio manager for Ashburton’s infrastructure development debt funds, said it represented a “very positive evolution” for South African debt markets. Keevy added that “the assets have become available at a time when equity market valuations look relatively high. Domestic equities are also expected deliver subdued returns over the short to medium term on the back of lower forecast GDP, higher inflation and higher interest rates. 

"Furthermore, the imminent reduction in the supply of inflation-linked government bonds means that those investors that prefer the certainty of guaranteed real returns in excess of inflation will, increasingly, have to turn to other sources. The investment offers about 200 basis points of real yield (or 2% p.a.) in excess of that available from inflation-linked government bonds, making it is an attractive alternative source of inflation-linked assets, especially after taking into account the government guarantees that are to be found within the REIPPP Programme.” 

Keevy also said that, in addition to an exclusive focus on CPI-linked debt, there will also be a clear preference for investments in earlier round renewable energy assets that are already operational. Ashburton, in meeting these sourcing criteria, has already invested into two operational projects and will source further projects by continuing to work closely with a variety of lenders, including the Big Four South African banks, all of whom have been major lenders to the REIPPP Programme. 

Ashburton Investments assets under management now exceed R132 billion (US$8.55 billion) and the business has extensive geographic reach with offices in South Africa, the United Kingdom, Channel Islands and United Arab Emirate

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