II: You’ve been active in the African market for the past 16 years. Tell us how African Infrastructure Investment Managers (AIIM) has evolved and grown since then?
JS: AIIM originated as a joint venture between Old Mutual Alternative Investments (OMAI) and Macquarie Infrastructure and Real Assets (MIRA) in 2000, and took over the management of a pre-existing infrastructure fund – the South Africa Infrastructure Fund (SAIF). Under AIIM’s management, SAIF expanded beyond the South African borders and performed remarkably well, laying the groundwork for the development of a successful business.
AIIM has since established itself as one of Africa’s leading infrastructure investment managers with a pan-African remit, extensive experience across a range of infrastructure sectors and a thorough understanding of the African business environment. Through our six infrastructure funds, AIIM participates in the financing of infrastructure projects and invests in companies in the infrastructure sector.
II: Old Mutual Alternative Investments is one of Africa’s largest alternative asset managers. How has AIIM benefitted from having Old Mutual as a founder and now sole shareholder?
JS: AIIM has the advantage of combining local knowledge with global expertise through access to international networks and experience, insight and best practice methodologies. We still maintain considerable autonomy and continue to benefit from Old Mutual Group’s ownership providing a joint operating platform, widespread distribution capabilities, comparative learnings and a specialist focus in Africa.
AIIM has always been a standalone business, and the change in shareholding does not alter AIIM’s long-term business plans. It did, however, present an opportunity to integrate and combine the respective skills of AIIM and the Infrastructural, Developmental and Environmental Assets (IDEAS) Managed Fund teams resulting in a larger, unified infrastructure investment team and a strong, in-house asset management team.
The infrastructure team is able to achieve synergies in the management of commonly held portfolio companies and leverage off additional capabilities and experience. As a result, OMAI’s infrastructure investment capability, which is manged by AIIM, remains highly specialised and is defined by its distinct investment style and philosophy.
AIIM continues to operate within its capital and risk requirements to create value for investors, with the backing of an established shareholder.
II: How big is your team and what kind of professionals does it comprise?
JS: The AIIM team has a wealth of infrastructure investment experience gained in Africa and globally. We have approximately 35 investment professionals with offices in South Africa, Nigeria, and Kenya.
With over 400 years of combined experience, the team possess a deep understanding of country-specific business environments and extensive sourcing and transaction expertise across sub-Saharan African markets. Our senior investment professionals have financial and engineering backgrounds, which support the active management of assets across AIIM’s infrastructure funds.
II: How has investor interest in Africa evolved?
JS: The African continent is diverse with its countries differing significantly in terms of growth rates, size of economy, political stability and levels of financial sophistication. We believe Africa offers a compelling infrastructure investment opportunity, despite the current headwinds. Strong fundamentals underpinned by the GDP growth trajectory, favourable demographics and an enabling environment for private investment continue to support an increase in both the number of infrastructure consumers and the projects required to address this increased demand.
Investing in African infrastructure is compelling for investors because it offers good risk-adjusted returns while focusing on the region’s fundamental needs, underpinned by a significant deficit in infrastructure spending. It also provides investors with an investment strategy which is largely insulated from certain externalities and macro-economic headwinds.
AIIM funds are backed by high-calibre investors and comprise major development finance institutions and institutional investors from the pension fund, banking and non-banking sectors.
II: Tell us what are the hallmarks of the AIIM investment approach?
JS: AIIM has experience as both a project developer and an equity investor across 11 jurisdictions in Africa and has gained substantial on-the-ground experience and tackled many challenges since its inception in 2000. Through private sector participation we are able to bring experience in assessing risks and the appropriate allocation of these risks to the various counterparties – developers, contractors, lenders, governments and investors, which supports the realisation of a successful infrastructure project.
AIIM’s investment process is founded on insight and international best practice, and adapted for the African investment environment. Our investment philosophy has been extensively tested across regions, sectors and infrastructure asset types over the last 16 years to withstand the challenges that often characterise infrastructure projects in Africa, mitigate risks and enhance returns.
Could you talk us through some of your more emblematic investments?
JS: There is a strong focus on power and, at the moment, the opportunities in this sector are largest in West Africa, in countries such as Nigeria, Cameroon and Ghana. We have invested in a 340MW thermal plant in Ghana, which will supply over 10 percent of Ghana’s current generation capacity. It is currently in development and is due to begin generating power by the end of 2017.
We are also participants in the 450MW Azura gas-fired power project in Nigeria, which reached financial close at the end of 2015. Smaller power projects with a budget of up to $500 million are perhaps where the sweet spot will be in the short- to medium-term.
II: Over the last few years, you have established key partnerships such as AIIM Hydroneo. What are the main advantages of this platform investing approach?
JS: AIIM’s objective is to unlock the power potential in Africa by advancing the development of the sub-Saharan African energy sector, not only through our power portfolio of over 2,250MW, but also through key industry partnerships.
AIIM and Hydroneo Afrique, a subsidiary of MECAMIDI, have formed a joint venture to develop, finance, build, own and operate a number of small and medium hydropower plants in Africa to represent an installed capacity of 200MW over the next five years.
Complementary to the partnership with MECAMIDI, AIIM has also built strong relationships with power project developers, including international power developer Joule Africa and renewable energy developer African Clean Energy Development (ACED), to enhance its infrastructure investment pipeline.
AIIM’s strategic partners mitigate key risks, enabling effective deal execution and project management.
II: How do you ensure good governance across AIIM’s investments?
JS: Making investments work on both a societal and business level requires great effort and is an integral part for any infrastructure investment. The AIIM team currently consists of two environmental, social and governance (ESG) specialists, and the business is looking to grow this specialist area, highlighting its importance in infrastructure asset management and socio-economic development.
It is important to make sure local communities fully understand any changes to their environment as well as the associated benefits the project will bring to their community. It is ultimately about building relationships, with international and local partners who adhere to regulations and then maintaining these relationships throughout the project life.
II: What are the biggest challenges you regularly face? And how do you mitigate them?
JS: The biggest challenge is people’s perception of risk in Africa. This elicits a need to show the market how the continent has changed and that the dynamics of the continent are relatively favourable from a risk standpoint.
Project development is not our sweet spot, but experience has taught us that when we have sufficient confidence that the project will reach financial close, it is often necessary to take on a co-developer role, in order to assist the project to attain that close.
From a project developer point of view, one of the main challenges is the length of time required to develop large-scale, capital-intensive infrastructure projects. Persistence is key in this regard. Some projects can take up to eight or 10 years to achieve financial close, due in part to the requirements of numerous permits, licences, exemptions and approvals from a range of government institutions.
Alignment of interests across stakeholders is also key, from state entities and local communities to construction and financing parties. In an environment such as Africa, where the private participation in infrastructure is still at a nascent stage, it is critical to ensure that all parties fully understand their obligations and rights in the development of these projects.