Blue Chip Issue 96

BLUECHIPINVESTMENT |

BLUECHIPINVESTMENT | EconomyReframing income andimpact: thecase for South Africanprivate creditIn an environment of high inflation, low growth and marketuncertainty, financial advisors are being asked to find new waysto deliver consistent returns and manage downside risk.Traditional fixed income assets – such as governmentbonds and money market instruments – remain importantbut are no longer sufficient on their own. Equitymarkets are unpredictable, and cash often fails to keep upwith inflation.As a result, more planners are looking for alternatives. Privatecredit, particularly in the South African context, is gaining attention.It offers investors the chance to earn reliable income by lending togrowing businesses, while also supporting the real economy.Why private credit matters – especially in South AfricaSouth Africa has a well-developed financial system, buttraditional lenders, especially banks, are cautious when it comesto small and medium-sized enterprises (SMEs). Many viablebusinesses are unable to access capital, even when they have stablerevenues and sound management teams.This creates an opportunity for private credit funds, whichprovide tailored loans to these businesses. These loans are usuallyshort- to medium-term, backed by assets or contracts andstructured to reduce risk for investors. The benefits for local investorsare clear:• Attractive returns. Private credit in South Africa often targetsreturns well above inflation and money market investments.• Built-in protections. Loans are structured with security,guarantees or cash flow-based repayments.• Low correlation to public markets. Returns are driven by realbusiness activity, not stock or bond market movements.• Tangible impact. Lending directly to SMEs helps grow businesses,create jobs and support economic development.Aligning capital with purposeAnother growing theme among investors is purpose. Manyclients realise that their quality of life is driven not just by thegrowth in their wealth, but also by the development of thecommunities they plan to live and retire in.Private credit is well suited to this. By financing businessesin sectors like logistics, healthcare, manufacturing or agriculture,investors can support inclusive economic growth in their localcommunities. These outcomes are measurable, and often visible– jobs created, social stability and thriving economic hubs.For advisors, this provides a way to meet both financial andnon-financial objectives in a single product. The challenge is thatmost private credit offerings in South Africa focus on offshoreexposure instead of investing in local communities.A potential solution: the Altvest Credit Opportunities FundThe Altvest Credit Opportunities Fund (ACOF) is an example of alocal private credit fund that focuses on SME lending. It providessecured, structured loans to South African businesses with strongfundamentals but limited access to traditional credit. Some of thefund’s key terms:• Attractive returns [26% IRR for equity investors and prime +2%for debt investors via listed and regulated instruments]• Semi-annual income distributions for debt investors• Robust collateral and risk management built into every transaction• Meaningful manager co-investmentACOF is open to all investors, via direct investment and/orwrapped products. It is particularly suitable for those seekingalternatives to listed bonds or income funds, and who arecomfortable with a medium-term investment horizon.A new tool for South African advisorsFor financial planners, private credit adds value as part of a welldiversifiedportfolio. It does not substitute for traditional assets,but it does offer important benefits: stable income, local economicexposure and measurable impact.The key is careful manager selection.Not all private credit is created equal.Advisors should look for funds with clearinvestment criteria, strong credit processesand transparency in reporting.South African private credit, like ACOF,offers something rare: the ability to earnattractive returns in rands, support the realeconomy and reduce reliance on volatilepublic markets. In a time of uncertainty, itis a tool worth serious consideration. Akshay Karan,Chief InvestmentOfficer, Altvest42 www.bluechipdigital.co.za