Consortium · established July 2024
The RECM “Goede Hoop” South African Small Cap Consortium
REGA consortium for specifically selected investors, established by RECM in July 2024 to capitalise on a temporary opportunity in the South African listed market: minority interests in quality listed small and medium-sized businesses, housed in a tax-efficient vehicle.
The opportunity
The opportunity exists because of a structural imbalance in the South African capital market. Investors have been consistent sellers of local stocks, regardless of valuation, to fund purchases of large rand-hedge index shares or to move money offshore.
With election results behind us, infrastructure constraints lifting and the consumer outlook improving, the families behind two family-controlled businesses have already indicated a willingness to commit significant capital to take their organisations off the market at large premiums to the prevailing price.
We believe this bodes well for the local small and mid-cap sector, where many good businesses are languishing at rock-bottom valuations. It is relatively easy to construct a well-diversified portfolio from this part of the market that is set up to deliver more than reasonable returns over the next few years.
Structure
Structure is the cornerstone of the outcome. Address the incentives for all parties, and the correct strategy follows naturally.
Liquidity
Semi-annual liquidity opportunities, with a three-month notice period and a 5% penalty on withdrawals in the first three years.
Penalties are shared by the remaining investors and do not accrue to the manager. The penalty is not punitive, it asks investors to think carefully before committing. The best outcome is that everyone stays the course.
Size
Deliberately limited, because the opportunity is not scalable beyond it. REG is looking for approximately R250 million from select investors.
Preference is given to large investors; the structure does not work with many small ones.
Fees
RECM manages the consortium for an annual fee of 1%, and a performance fee of 20% of gains above a 20% p.a. compound return, with a catch-up.
The performance fee accrues in the pricing and is paid only on termination and liquidation. This opportunity will not persist; REG should be wound up when it is over, the sooner the better.
Leverage
A limited amount of leverage: up to 20% of total assets: to enhance returns.
Indicative portfolio metrics
A current indicative portfolio of 34 stocks
Return on equity
Price to book
Starting price to earnings
Starting dividend yield
Expected earnings growth over five years
Average market capitalisation
Indicative only, as at the date of the consortium teaser. The portfolio is not static and these metrics will change.
REG is offered to specifically selected investors by invitation.
Request the teaserThis page is a summary for information only. It is not an offer, a solicitation or advice, and it does not describe the full terms of the consortium, which are set out in its constitutional and offer documents. Targets and indicative metrics are not forecasts. Past performance is not a guide to future returns.