“World Cities Day talks to what we are trying to achieve with the Sanlam Investments Property Impact Fund”

Exclusive interview with Manka Sebastian, Portfolio Manager, Sanlam Investments, the title sponsor of the upcoming Africa’s Green Economy Summit.

Let’s start with some background on you. You have extensive experience in property and social infrastructure investment.
Hello everyone, thank you for having me. I’m a portfolio manager at Sanlam Investments and the subject matter expert on property social infrastructure within the alternatives team. My training lies within finance, with a specialisation in alternative investments, and my background is actually within properties with the utilisation of data. So, the dream for me is to direct institutional investors to opportunities that create spaces for people to reach their highest version of themselves, which will inevitably lead to commercial returns.

Please tell us more about your portfolio at Sanlam Investments.
The Sanlam Property Impact Fund is a fund targeted at providing facilities and spaces for impact operators that are providing affordable services to the missing middle. This fund will be launched in 2024 and aims to have an AUM of ZAR 4 billion. Now, the missing middle is typically defined as those individuals who are too rich for government support and services, but additionally, they are not affluent enough to receive affordable support from financial services and other social infrastructure providers. When we think about it in terms of the South African context, this particular demographic represents 65% of all individual taxpayers. The fund that we’re looking to launch will operate in affordable housing, affordable education, student housing, rural and township retail. These sectors were targeted specifically to acknowledge that to actually unlock the growth that is underlying our individual workforce, we need to tap into sectors that are dedicated to human-centric potentials, such as the ones I mentioned before.

In your view, are most social infrastructure investment projects investable?
The optimistic answer for me is yes. The more correct and appropriate question to ask here is, are all forms of capital appropriate for most social infrastructure investments? Now, as alluded to in the definition of the missing middle, private investments’ role is not to replace government’s role in terms of its provision of social infrastructure. As mentioned, the targeted demographic tends to be considered too affluent for government support. What private sector can do in terms of this is not to replace government’s role, but to augment it in providing targeted social infrastructure assets that are targeting this particular segment.

It’s my belief that if we invest in the quality of human capital-centric investments, we will actually crowd in competition and investment into these targeted sectors, which will not only improve accessibility and affordability to the segment, but also actually improve the quality of these provisions, such as education and healthcare, due to the increased competition that would now exist within this space.

What can governments be doing with regards to enabling private sector social investment?
What governments can do in terms of enabling private sector social investment is what they continuously actually are doing now in terms of increasing the access to usable data for private sector players such as ourselves to identify where exactly private sector money is best used in terms of identifying underservice.

The provision of up-to-date data, such as that that was released in the census of 2022, is helpful in understanding not only the behaviours of the various individuals and populations that make up South Africa, but also their preferences when it comes to ownership, use and location of assets. By providing such quality and usable data, government is enabling the private sector to better assess which opportunities are feasible and that will generate not only commercial returns, but also impact returns when it comes to social investment.

What are the main challenges that you face in your work?
The main challenges that we face in our work is actually the access to historical time-series data. And why that’s important for us for in terms of private institutional investors is that because social infrastructure investments are long-term investments, it’s important that we actually have access to information that actually allows us to quantify not only the returns they would expect from these investments, but also the risks associated with them.

Therefore, because this private social infrastructure sector is still in its infancy, the access to this data has been challenging. Consequently, to overcome this challenge, one actually needs to go back to the fundamentals of each sector and understand the performance drivers behind it and work from there.

The second challenge we have found is that educationally, financial professionals such as myself have a long way to go in understanding the defensiveness of social infrastructure investments within the context of the country that they operate in. What we have done is work to translate that human capital potential into quantitative measures that will ease the understanding for financial professionals and capital providers so that they can better understand the associated risks and returns and consequently invest to the best of their beneficiaries’ advantages.

31 October is International World Cities Day and this year’s theme is: Better City, Better Life. What is your vision for the smart city of the future, particularly in Africa?
The International World Cities Day’s theme of “Better Cities, Better Life” excites me because, basically, this talks to what we’re trying to achieve with the Sanlam Investments Property Impact Fund; and that we actually want to build a city and contribute to the building of a city that puts people first. And what that city looks like for us is a human-centric city where the biggest contributor to GDP is the services provided by the people.

How we would do that is to make sure that technology has been leveraged to the point that people can not only communicate, but do business and innovate in the language they dream in. What that then leads to is a city that understands its environmental context, and, as a result, has a built environment that exists symbiotically with nature. A city that gives back to nature in the same magnitude that it takes from it, making sure that the humans and the people within the city are allowed to thrive to the best of their ability.

Which African countries are doing the right things in your opinion?
With that in mind, in my opinion in answering this question is to ask: What does that city of the future look like? The countries that are doing the right things are the countries that are moving towards having industries that do not have smokestacks. The World Economic Forum calls it IWOSs (industries without smokestacks). According to the World Economic Forum, 60% of the new jobs created by 2035 will be in high-value agriculture business, horticulture, tourism, business services and ICTs.

With that in mind, an African country that has been leading the way in this is, for example, Seychelles. It’s the only African country to actually fully accomplish the UNESCO Education For All aim. Mauritius is another island country that’s the highest ranked African country on the UN productivity capacity index as a result of their focus on ICTs and human capital revenue generation. Rwanda, despite its turbulent past, has actually accelerated the investment in health and education that has resulted in an above-average GDP. Additionally, it has a strong social cohesion base that continues to thrive in the new environment.

Other countries in Africa that are on the horizon and worth watching are Ghana, Kenya and South Africa, as there is a big shift towards creating this future for their populations. The ability to achieve this future for populations will be dependent on the quality of execution and not necessarily the quantum of spend that these countries make in these particular human-centric spaces.

What keeps you excited about this sector?
What keeps me excited about the sector, especially within the African context, is the increased availability of usable data and technology. What this means is that previously, it was very difficult for private sector players to actually identify, to the kilometre, how many particular affordable houses were built in a particular space, or where healthcare was provided across a particular country. Now, with that increased availability of data and technology, those assessments are now able to be done in under 30 minutes, where previously there was desktop work that could take days. So, the increased usability of data and technology is actually going to accelerate private sector investment into social infrastructure asset classes as a lot of the desktop work has been halved and will continue to be halved as we see advancements in technology.

Another thing that excites me is the introduction of AI, which is allowing us to not only accelerate how we learn about certain spaces, but also accelerate how we can learn about different cultures, and how, what we put into the market, is purpose-built towards that particular culture and country.

Anything you would like to add?
I think the last thing to leave you with is to continue to believe that our biggest asset in Africa is our people. There is no continent better placed for the challenges of tomorrow. And it’s important that we focus on untapping the goldmine that lies in the brains of our people, as it’s well accepted that Africa will be the labour force of the world for tomorrow. Thank you very much.