Ashburton Mezzanine Fund I has successfully reached the first close of its inaugural fund, raising R507.5 million from four investors.
“The fund is targeting a final close of around R1 billion and will invest in opportunities in South Africa with an allocation of up to 20% for investments in Botswana, Namibia and Zambia,” said Ashley Benatar who heads the fund.
“It offers investors close to equity returns while taking debt like risk. Therefore, on a risk adjusted return basis, mezzanine debt offers investor a compelling alternative to traditional assets given the security and covenants that are in place on a mezzanine investment.”
The fund is targeting returns of around 20% from investments that achieve current income (in the form of interest) and longer-term capital gains (in the form of equity upside) from a portfolio of investments ranging between R75 million and R150 million each.
The fund will focus on investing in established mid-market or large companies with profitable track records and experienced management teams. Fund investments will benefit from downside protection based on superior ranking relative to equity investors.
“There have been two market declines already in the last 10 years, both with prolonged recoveries which has resulted in low growth and a lot of uncertainty in traditional investments such as equities.
“This has provided a boost to alternative investments such as mezzanine debt funds as investors seek to find higher yields,” Benatar added.
Ashburton Investments is the asset management arm of the FirstRand group and will aim to close its first transaction in the next few months, it said.