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President Ramaphosa recently “launched” the SASME Fund (although it has been around for some months.) This is a $1.4 billion Fund initiated by the CEO’s of some of South Africa’s largest companies, with a mandate to “invest in in scalable small and medium enterprises with the best potential for growth and sustainable employment creation in the South African economy.”  

This demonstrates recognition by the private sector that revitalising the economy is not just the responsibility of government and requires something more than just business as usual.  It is also,  although the founders may not agree, an act of redistribution: taking corporate profits and ploughing them into a mechanism that is intended to put assets in the hands of the historically marginalised.  The need for redistribution is a difficult conversation that South Africans still need to have, so its good to see a willingness to act.

SASME is a “Fund of Funds”.  According to its website It will not finance enterprises directly but rather ‘allocate investment capital to accredited fund managers – venture capital or growth-oriented equity funds – that invest directly in scalable small and medium enterprises with the best potential for growth and sustainable employment creation in the South African economy” and has already invested in five such entities.

The question must be asked whether there is not something more creative that could be done with this, or indeed other money.  The primary purpose of private equity and debt funds is to maximise returns to their investors, and management are incentivised accordingly.   The tagline on the website of one of the funds reads: “How to make super returns”.    Will the SASME funding help them earn more super returns?  Another fund notes on its website that it is about to close its 5th fund with R1.2 billion capitalisation.  Does it really need money from SASME to do its work?

There is no information on the specific conditions attached to the SASME funding, but I have spent enough time amongst even those who call themselves impact investors to know that the commitment to return on investment and to emulating the disciplines of investment banking and private equity is deeply ingrained in the practice and policies and decision-making structures of these entities.

The very existence of SASME implies that the growth of new businesses requires something that does not yet exist in the market, otherwise why bother?  Yet being a fund of funds means building on the capacity that already exists in the market, and it strongly implies that what is needed to tackle poverty and inequality is simply more of the same:  more commercially conceived and implemented debt and equity funding.   While SASME may not expect market related returns, it is investing in institutions that are committed to matching or beating the market.  It will be interesting to see what will be different about their use of these funds.

It is testimony to the extent to which the prevailing ideology of finance so controls the discourse that development finance institutions all seem to believe that they should emulate commercial investors.  

Wouldn’t it be interesting to create a fund that is willing to lose some money, not recklessly or negligently, but through an appetite for risk and a willingness to innovate, and where the benefits of the risk taking would go to struggling entrepreneurs rather than intermediary fund managers.  If we are to overcome the constraints of South Africa’s highly monopolistic economy and the centuries long cementing of inequality, then we should be willing to consider truly developmental financing.  

This might include: 

• Debt funding at below market rates;  
• Repayment schedules built around the growth of the business, rather than impeding its growth by requiring payment (or accruing interest) from the beginning;
• Equity type investments that seek neither ownership control nor equity returns - and which certainly don’t have both eyes on the exit multiple that guarantees bonuses to the fund managers (carried interest);
• A “spray and pray” fund that makes small amounts of money available on the basis of the business idea and the character of the borrowers, rather than the dreaded business plan that is helpful only to the analysts.

In such a fund the true measure of success would be the success of the companies in which it invests and the reality that these companies genuinely could not have succeeded without this kind of funding.  

Such a fund could become a vehicle for true redistribution, where losing (i.e. giving away) some money in order to help other businesses grow would be the whole point.