Section 12J performance in the spotlight

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Jaltech’s Infinity Anchor Fund has been in the spotlight following the announcement of its recent results. Infinity Anchor Fund focuses on investing in businesses that are underpinned by movable assets and generate revenue either through the rental of assets (such as security rental businesses, water metering companies etc.) or through long term contractual relationships (such as fibre infrastructure, solar etc.).

Gaurav Nair

Gaurav Nair, the CEO of Infinity Anchor Fund, says that “Infinity Anchor Fund 2021 invests in businesses which aim to generate moderate growth and consistent dividends for investors through the cashflows which asset-backed businesses yield. Our three-year track record of consistent results has proven the effectiveness of our investment strategy.

Current investments

Infinity Anchor Fund’s portfolio is made up largely of asset rental companies, such as Secutech. Secutech is a provider of security related technology to body corporates, estates and security companies. Gaurav states that “Secutech has been an excellent investment, the company has fared well during the pandemic and has recently yielded a return of approximately 10% to the fund.”

Another standout investment has been Rise Telecoms, Rise Telecoms installs fibre infrastructure in buildings and then sells  data to the residents. Gaurav mentioned that “Rise Telecoms has far exceeded our expectations, and the growth in this company is excellent, particularly given the rise in data consumption due to COVID-19. We are hoping to invest a further R20 million into Rise Telecoms this year.

Performance

Infinity Anchor Fund’s diverse portfolio has generated impressive returns, as a result, Infinity Anchor Fund has paid out 6-monthly dividends over the past 30 months and is on track to achieve a return (inclusive of the tax benefit) of approximately 15% p.a., for its 2018, 2019 and 2020 investors.

Gaurav says that “Infinity Anchor Fund’s returns are attractive even if one ignores the tax benefit, most Section 12J investments are reliant on the tax benefit to generate returns to investors, we on the other hand regard the tax benefit as a bonus.”

In addition to the impressive portfolio of investments, Gaurav believes that it’s very difficult for competing Section 12J investments to outperform Infinity Anchor Fund. Gaurav’s statement is supported by the fact that competing Section 12J investments have made two huge mistakes. These include:

Charging investors performance fees which are earned not only on the growth of the investment but also on the tax benefit. If one considers the latter, investors are charged a performance fee of 20% on the 45% tax benefit, imagine starting off in an investment 9% down” says Gaurav.

The second mistake, Gaurav believes, is that competing Section 12J investments have raised more capital than they can invest in a single year. Gaurav noted that “there are Section 12J investments which have been holding investors’ capital in a money market account for years and, as a consequence, these investments are performing poorly.

Another factor that is completely out of the control of competing fund managers, is that these fund managers have invested in new property investments. “Given the impact of COVID-19, the property industry has been decimated and, as a consequence, so too has investors’ returns” says Gaurav, he further adds that “property backed Section 12J investments are mostly investing in new property developments, despite the fact that it’s a buyer’s market. One would have thought that it would make sense to rather buy existing assets which are being sold at a huge discount.

New investments

Gaurav is confident that the asset rental market will continue to perform, particularly  given that during difficult economic times, corporates and individuals tend to enter into rental arrangements as opposed to committing capital into new assets.

Furthermore, Gaurav says that “Infinity Anchor Fund has seen a significant increase in healthy businesses with excellent track records and blue chip clients approaching Infinity Anchor Fund for capital as the banking sector has pulled back due to a COVID-19 driven decrease in their risk appetite.” This has created a significant opportunity for Infinity Anchor Fund to invest in businesses that have a strong balance sheet and a proven track record.

Investor funding

Given that the Section 12J deadline is at the end of June, many taxpayers will realise that although they are aware of their annual tax liability, they may not have the necessary cash flow to invest before the 30th of June.

To assist taxpayers with funding, Infinity Anchor Fund has arranged the support of a financial institution to provide a low-interest loans to investors who are looking to invest in Infinity Anchor Fund 2021, before the end of June. Taxpayers can now apply for funding of 95% of the investment amount at an initial interest rate of 4% p.a. 

“Infinity Anchor Fund has already raised millions of Rands through the funding facility which has been made available to investors. In addition, because the initial rate is only 4% p.a, many investors are taking up the loan facility simply because the cost of capital is lower than returns they are achieving elsewhere in the market.” says Gaurav.

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