Altvest Capital is an investment platform that seeks to democratise alternative investments in South Africa. Its chief executive officer Warren Wheatley tells Environmental Finance how he plans to scale impactful private equity to support job creation in the region.

Environmental Finance: How is Altvest Capital seeking to democratise alternative investments and revolutionise private equity in South Africa?

Warren Wheatley: South Africa suffers from the same issues that plague almost every capitalist nation. Capital circulates in closed ecosystems and the rich stay rich. When you couple that with South Africa's historic, systematic exclusion of large parts of the population from the economy and persistently high unemployment, that problem is even more complex. I wanted to provide investors with the ability to invest in the real economy in South Africa and support entrepreneurs and small and medium-sized enterprises (SMEs) to support economic growth and job creation.

SMEs are fundamental to the economy but struggle to access appropriate financing. This problem is particularly acute for female-led SMEs, which are structurally under-represented in the financing market.

At the same time, institutions are seeking private credit investments but struggling to access viable opportunities. Altvest aims to connect these, creating meaningful economic value.

We have regulated a crowdfunding approach within the prescripts of the South African Capital Market regulations. We take care of the administrative, legal, and regulatory issues and provide a platform whereby small businesses can raise money from retail investors. The flip side is that these investors invest in asset classes that they would not otherwise have had access to.

We created an equity capital solution for SMEs whereby Altvest acquires stakes in qualifying entities, funded by listing preferred ordinary shares. For example, we have invested in the Bambanani Family Group – a women-led, family-focused restaurant. Proceeds from the shares were used to fund the acquisition of an investment stake in the Bambanani Family Group. Holders of each preferred ordinary share benefit via access to a liquid secondary market where investors can easily view daily market values and have the flexibility to structure their portfolios to their investment needs, including increasing or decreasing their shareholding as required.

One of the issues with private equity is that you need large amounts of money to participate. The other thing you need is a long investment horizon. Because we become the anchor investor and provide synthetic exposure, we need to be those things, but our investors don't. Our investors can enter at affordable amounts and, in all instances, they are liquid investments. We've created entry and exit points that are affordable. We've disrupted the usual private equity approach.

EF: Can you explain your fractionalised share ownership approach?

WW: Ordinary share prices are usually so large in an absolute perspective even one share is out of reach for most people. Fractionalisation allows for people to buy a portion of a single share. Whenever I issue instruments or divide up a company that we support, we make sure that the nominal amounts are so small that they are affordable to the lowest common denominator. I make it possible for a person to buy a single instrument or buy in increments they can afford.

EF: What are your plans for a debt offering?

WW: We will soon launch the Altvest Credit Opportunities Fund (ACOF). It will provide an innovative private credit product offering with a target equity IRR of approximately 20% over a holding period of 7 to 12 years. For SMEs, it provides an opportunity to obtain funding with flexible repayment terms.

The fund is going to be open for all SMEs but we also want to encourage gender empowerment, so we have impact metrics that reduce overall borrowing costs. Each metric is equally weighted at a 5% discount to the borrowing rate for any of the following criteria: a female chief executive officer/chief financial officer/chief investment officer; at least one female director; more than 50% of women employees; more than 50% women shareholders; or being a woman-founded business. This can result in up to 25% reduction in borrowing costs. If you achieve any of those things over the course of the loan, we reward borrowers instantly.

EF: Do you have support from institutional investors or large-scale asset managers?

WW: We need institutional participation to get to the scale we need. We've got a domestic medium-term programme where institutions can invest large amounts so that we can on-lend those products into the SME market. We've got soft commitments of about almost ZAR 500 million ($27 million).

EF: How do you incorporate ESG into your approach?

WW: The 'E' in ESG is as difficult. South Africa is just not in a place where that is top of mind. We have a 37% unemployment rate. Also, SMEs are not major contributors to the carbon footprint of the country.

However, we do ensure our businesses are environmentally responsible and we have an investment scorecard that explicitly includes ESG considerations. We also allow funding for people to install renewable energy power solutions. But that's primarily driven by the fact that the South African electricity grid is on the verge of collapse.

From a governance perspective, we are relentless in our pursuit of compliance and adherence to financial regulations. It's a non-negotiable that the SMEs comply with the laws in whichever industry they operate. And that's something we can't be lax about because we are custodians of investors' capital.

On the social side, we are doing this to create jobs. We want to use the funding to support job creation and improve female empowerment. We report vigorously on those metrics and voluntarily apply the Code for Responsible Investing in South Africa (CRISA) and the UN Principles for Responsible Investments (UNPRI). We report how much employment per capita we secure. We are currently at a ratio of; for every ZAR 5 million you spend, we can create three jobs. We want to constantly improve that ratio and have that be a metric that investors can follow and track.

We want real impact and real improvement in the things that move the needle for society.

For more information, see: altvestcapital.co.za