To read about our investment, click on the link to our 2015 Annual Review.
Royal Bafokeng Holdings (RBH) has been mandated by its shareholder, the Royal Bafokeng Nation Development Trust (RBNDT), to manage the Royal Bafokeng Nation’s (RBN’s) commercial assets to ensure long-term sustainable returns for the benefit of current and future generations of the Bafokeng people.
By the end of 2015 the gross asset value of our portfolio was R32.7 billion
Although the primary focus is on value creation, we place great emphasis on capital preservation. To this end, diversification has been a strategic thrust for several years, given the historic high exposure to platinum group metal (PGM) mining assets.
A secondary responsibility is to generate sufficient income to pass on as dividends to our shareholder, the RBNDT. Income generated from the investment portfolio is the primary source of funding for the RBN’s social and infrastructure budget. Improving the yield of the portfolio is a focus area - this does not mean that all investments should be dividend paying, but that there should be an appropriate mix of income-generating and growth assets.
A tertiary responsibility is to assist the RBN in the generation of social returns. RBH adds value to this process through the activities funded by its corporate social investment (CSI) programme and through encouraging its investee companies and other third parties to bring funding and skills to bear on programmes that are part of or are aligned with the RBN.
RBH is a long-term investor that acquires significant stakes in high-quality companies. The funding of the overall portfolio is made through a combination of equity capital provided by the RBN and by prudent levels of debt.
The types of assets in which RBH seeks to invest are those that meet our strategic asset allocation criteria (diversification, growth, risk and yield), but also satisfy all or most of the following qualitative criteria:
- Companies should have resilient business models that will outlast most cycles and withstand changes in the operating environment;
- The asset stands to benefit from favourable macro-economic or social tailwinds;
- It is one of the top quality assets in its industry;
- The asset must be profitable, or should be profitable under normal circumstances. We will, however, invest in infrastructure projects that are not immediately profitable, but we avoid turnaround situations and venture capital; and
- The company should share our values, including a high regard for sound corporate governance.
RBH considers active ownership an important component of its investment strategy. We seek mutually beneficial partnerships with our investee companies and play an active and constructive role. The company normally negotiates Board representation. In choosing its directors, RBH nominates individuals who will add value to the investee company and will participate in and influence the investee company’s strategic management. The RBH director so nominated owes his/her primary fiduciary responsibility to the investee company. We promote best practice in terms of operations and governance, and aim to influence investee companies to contribute positively to the development of the Bafokeng and others. RBH aims to add value through participation in processes involving talent identification, remuneration, capital allocation, high-level strategy and corporate governance, but it does not seek to get operationally involved in the companies that it invests in.
The RBH investment team spends considerable time analysing the fair value of potential targets, as well as their long-term growth prospects. Profitability is the primary determinant of long-term returns. Over time, the higher compound return generated by a thriving business will more than compensate for the initial discount on buying into a business that has an average growth rate. Industry, asset class and geography will be considered as we diversify.
We would rather buy into businesses that can be held through economic cycles. The terms of purchase can be further enhanced through securing black economic empowerment (BEE) discounts, attractively priced options and follow-up purchases and the appropriate use of value funding.
RBH’s future investment programme will have a bias towards diversification and yield, without sacrificing growth. In the medium term, RBH is targeting investments in sub-Saharan Africa and, in the long-term, will add developed-market exposure, absolute-return strategies, as well as inflation-linked fixed income.