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19 JUL 2016

A NUMBER of investors have already piled into Ethos Capital Partners’ initial public offering, committing R1.1bn ahead of its listing on the JSE.

The company ”” a special vehicle set up to give ordinary people access to private equity investments, an area that has long been the domain of large pension funds and wealthy individuals ”” is looking to raise up to R2bn when it lists on the bourse in August.

So far, it has clinched commitments from blue-chip investors such as asset managers Kagiso, Coronation, and Stanlib; New York-based private equity company Black Hawk; and parent Ethos Private Equity, the largest private equity firm in sub-Saharan Africa.

Once listed, shareholders in Ethos Capital will have the opportunity to co-invest along with parent Ethos Private Equity in four of its funds, with the smallest valued at R2bn and the largest at about R11.5bn. Ethos’s funds have delivered a gross return of 27% to investors since 1996.

“What’s important is that we are not changing our business model,” said Ethos CEO Stuart MacKenzie.

“We will continue to remain a private equity business.”

Ethos Capital will give shareholders exposure to two existing funds ”” the $805m Ethos Fund VI buy-out fund looking to clinch up to 12 deals at a price tag of up to R1bn each, and the mid-market fund chaired by prominent businesswoman Sonja de Bruyn-Sebotsa. Ethos Capital CEO Peter Hayward-Butt said the buy-out fund had invested 80% of its mandate, with the rest to come from Ethos Capital shareholders.

Fund VI’s portfolio includes the Twinsaver Group, which manufactures tissues of the same name; and Eaton Towers, which leases telecoms infrastructure to clients such as MTN and Vodacom.
The mid-market fund is in the process of raising up to R3bn to invest in businesses with significant black ownership.

The other two funds comprise a mezzanine financing fund and another buy-out fund.
ECP is targeting returns of 25% over the lives of the funds, except for the mezzanine fund, which is targeting the three-month Johannesburg interbank agreed rate, plus 3%.

Ethos previously tapped large institutional investors and wealthy individuals to invest in its funds, which typically involved lock-in periods of up to seven years.

It was prompted to launch Ethos Capital after its institutional investors expressed concerns about the lock-in periods.

“Institutional investors have come to us and said we enjoy the 27% returns, we’re with you, but we do not want to stay invested for 10 years,” Ethos Capital’s Hayward-Butt said.

“We are giving investors an opportunity to invest in a liquid investment,” he said.

MacKenzie said that even if people chose to invest in Ethos Capital, they should understand that private equity is “patient capital”.

The Ethos CEO says that when a fund matures and pays out fully, Ethos Capital plans to raise a new fund with the proceeds.

“Fund VII will be a R9bn to R10bn fund. We will invest that fund in a portfolio of 10 to 12 underlying portfolio companies,” said MacKenzie.