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Who is Fedgroup?
Established in 1990, as a specialist South African financial services provider, we have carved a niche for ourselves by doing things differently. Our unique approach prioritises people and long-term sustainability ahead of short-term profit.
With over R20 billion in assets under management, we offer various financial products including investments, long-term insurance, lending, and fiduciary services.
Investing in South African agriculture provides not only crucial resources needed in farming to run sustainable operations, but also provides the additional benefit and advantage of investing in local communities. This not only adds to food security but, most importantly, prioritises people first, which is our main mantra.
Through our carefully constructed ecosystem of bespoke products and licences, unmatched experience, and innovative technology, we have built the capabilities to structure holistic solutions that cater to the needs of our clients and partners alike.
And it is this ecosystem that facilitated the progression from capital deployment into property, to capital deployment into sustainable investments and agricultural projects.
We understand the entrepreneurial mindset and employ a flexible approach to meeting unique client requirements without layers of bureaucracy or wasted time. In fact, we make it our business to add value and efficiency to agri financing solutions.
This includes applying a more holistic view of borrowers and not simply making decisions based on algorithms or ticking boxes.
Therefore, we apply a true vertical integration approach to projects and partnerships in the impact investing space. Unlike superficial financiers, we are deeply entrenched at ground level in a range of sustainable initiatives.
This hands-on approach allows us to gain valuable insights to ultimately unlock value and yield, establishing ourselves as a key player in driving true sustainability in the impact investing sector.
What do you mean by ‘assets’?
We have a definite interest in tangible assets that offer security and solidity that can better withstand market volatility. In the agriculture space, when we speak of ‘assets’, we are referring to biological assets, such as the actual crop in the ground or a farmer’s orchards.
These assets are the means through which the farmer generates revenue.
Why did Fedgroup decide to veer into agriculture?
Our decision is tied to the global issue of food security, and being able to get capital into an area that allows this issue to be addressed. It was also important for us to consider an area that has a significant impact on individuals; agriculture has the ability to create jobs and to put people first and drive value to rural areas.
Is impact investing similar to venture capitalism?
It is similar in some ways. We provide a broad set of lending, from financing the purchasing of a farm to providing working capital, providing expansion finance and providing asset-backed finance.
So, our approach is similar to a venture capitalist in that we look at what funding is required by the farmer, and deciding how we can provide a full offering to the farmer based on his or her needs. A lot of the time we look at driving value creation for farmers and the projects around this value creation.
In terms of agriculture, where is your main focus?
Our main focus at the moment is in permanent crop operations, such as fruit and berry orchards, as well as farms that produce high-value commodities, or commodities with high global demand.
When deciding on whom or what we want to invest in, we assess supply/demand curves, the strength of a farm’s offtake agreements, and where the produce is going. This helps us custom-build terms of funding for a particular business to match the life cycle of the asset.
Our strategy is not short term in terms of how we deploy capital in the agriculture sector. As agriculture is inherently a longer-term play, we expect to be involved over the long term. A lot of the time it takes a while for orchard trees, for example, to reach maturity and generate an income. We therefore match funding with these cash flow cycles.
How long would the typical investment be in an orchard, for example?
If we’re looking at expansion funding for an orchard, for example, our involvement can be anywhere from seven years or more; we have agreements with some farmers that span 25 years.
It’s important to remember that we’re not just capital providers. When we become involved with these projects, we look at how we can unlock value for the farmers, how we can unlock value for the surrounding community, and how we can unlock value for the broader ecosystem.
So we’ll look at being able to provide the expansion finance, but once the farmer has reached scale, we look at whether we can assist in putting up processing and cold storage facilities, for example, or whether we can invest in energy on the farm to make the farmer energy-secure and to drive down the cost of energy on the farm.
What criteria do you use during the investment process?
The farmer or business has to have a proven track record and they have to have a going concern. We conduct a business analysis as we need to apply due diligence in terms of the financial assessment.
We look at the strength of offtake and any form of collateral we can bring to the deal. At the end of the day, we’re still using our investors’ money to deploy into these projects, so we have to apply due care in terms of where we are putting our money and safeguarding the distribution of those funds.
We also have to look at the farmer’s cash flow cycles, and whether they will be able to pay back the money invested.
We also spend a lot of time with the farmers to determine who they are and whether they are the right partners for us.
We also then have to assess the impact of the potential projects we want to undertake: how are the farmer’s employees treated? What is given back to the communities? Does the farmer use the local communities for labour? Could we, as Fedgroup, through our other financial services, bring value to these communities by becoming involved with the project?
When investing, what is the desired long-term outcome for Fedgroup?
Ultimately, we have to make a profit on the distribution of capital. We can link it to actual production, for example, which would include a shared-risk model for us and the farmer.
In order for us to enable the sustainability of the project as a whole, we need to be able to ride that wave of good and bad with the farmer, as agriculture doesn’t just follow a straight line in terms of value or productivity.
We also get a return on our investment by adding extra value to the farms, like providing an energy solution or establishing a packhouse, for example. We can also look at group benefit solutions, like funeral cover for the farmers and their workers.
We therefore look at multiple ways to generate income, while unlocking value for the farmer and broader community.
How does Fedgroup measure impact through technology?
We need to be able to measure everything, especially in agriculture. Therefore, two decades ago, Fedgroup was looking for a state-of-the-art, single-source IT system that could be integrated across the entire business, but at the time, this type of technology simply didn’t exist in the industry.
As a result, we custom-designed and developed such a bespoke system called Azurite, to ensure a single view across all aspects of the business.
This cohesive system is constantly enhanced to adapt to developments in the business, and creates far superior access to data, controls and efficiencies compared to the multiple legacy systems common in the industry.
What makes this system so advanced is the fact that it’s overlayed with technologies such as The Internet of Things (IoT) and machine learning, applied specifically to measure the performance of assets, the effectiveness of daily business operations, and even specific projects.
In the case of Impact Farming, all partner and customer data is also allocated on the Azurite system, which contributes a great deal towards effective client interaction and reporting in real time.
This is because the system can gather granular data from its projects, ranging from measuring the efficiency of individual solar panels to the water consumption of crops. It can further identify trends and implement early warning systems to enhance operational efficiency and risk management.
The system is even linked to financial institutions to streamline the payment of client returns. Fedgroup’s interactive app is also linked to Azurite and enables clients to purchase impact assets, or even view the performance of their portfolios, to mention some of the functionalities.
Irrespective of the fact that Fedgroup looks after the interest of thousands of investors, the system is built to handle large amounts of data, alleviating the back-end and administrative burden.
Precision-based agriculture and deploying leading agri technologies onto farms represent the future. We are at the forefront of a new paradigm of impact investing, where technology, community engagement, and sustainability come together.
Aside from financing partner ventures and providing expert support, the company leverages innovative solutions that generate positive financial returns and create meaningful social and environmental impact over the long term.
Visit fedgroup.co.za.
