Invest in a portfolio of renewable energy

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Section 12B Investment Fund

Fairtree has launched a Section 12B Investment Fund (“the Fund”) to provide clients with an opportunity to invest in a portfolio of renewable energy-producing assets. In addition to gaining exposure to an alternative asset class which provides long-term returns, clients receive the benefit of an up-front tax deduction of 125% of the amount invested.

Upfront tax deduction of 125%

What is Section 12B?

Section 12B of the Income Tax Act No. 58 of 1962 allows for a tax deduction in respect of certain qualifying assets to reduce the taxable income of the taxpayer. These qualifying assets must be used for purposes of trade in the generation of electricity from renewable sources in South Africa. The tax deduction is available for all tax-paying entities, for example, companies, trusts and individuals.

Section 12B tax incentive allows taxpayers to claim a 125% up-front tax deduction for all renewable energy projects without limits on the generation capacity. This amendment is solely available for renewable energy projects that generate electricity for the first time between 1 March 2023 and 28 February 2025.

Benefits

Benefits of investing in South African renewable energy:

01

Investment in green energy assists South Africa’s energy crisis, which has become a growing necessity due to the ongoing lack of reliable electricity and energy supply.

02

Actively contributing towards reducing South Africa’s carbon footprint, as well as
contributing to sustainable energy generation.

03

Directly assisting in stimulating economic growth.

04

Earn attractive yields with the added benefit of tax deductions.

Fund Details

The Fund will be mandated to own and operate a portfolio of renewable energy-generating assets that sell the generated electricity to creditworthy counterparties, which are bound by long-term power purchase agreements.

Minimum Investment

Fund Term

Targeted Internal Rate of Return (IRR)

Distribution

Fees

R1 million

10 years

  • 15% ungeared pre-tax return (before the section 12B tax benefit)
  • 25% ungeared pre-tax return after the 12B tax benefit
  • +/-45% geared pre-tax return after the 12B tax benefit and gearing

Proceeds from power purchase agreement (PPA).

Management Fee: A management fee of 2% per annum is payable to the fund manager on the capital invested.

Performance Fee: 20% carry after repayment of capital at risk.

The Fund will be mandated to own and operate a portfolio of renewable energy-generating assets that sells the generated electricity to creditworthy counterparties, which are bound by long-term power purchase agreements.

Minimum Investment

R1 million

Fund Term

10 years

Targeted Internal Rate of Return (IRR)

  • 15% ungeared pre-tax return (before the section 12B tax benefit)
  • 25% ungeared pre-tax return after the 12B tax benefit
  • +-45% geared pre-tax return after the 12B tax benefit and gearing

Distribution

Annual – Proceeds from power purchase agreement (PPA)

Fees

Management Fee: A management fee of 2% per annum payable to the Fund Manager on the capital invested.

Performance Fee: 20% carry after repayment of capital at risk.

Attractive Investment Returns

There are currently attractive projects available in the market and the Section 12B tax incentive further enhances the returns of these projects. Adding limited gearing at the project level* can enhance returns even further for investors.

The Fund’s pipeline includes various projects that have ungeared IRRs of c.15% per annum, providing initial ungeared IRRs (after Section 12B) of over 25%** per annum and geared IRRs of over 45%** per annum over a 10-year period.

*Investors will be required to provide a limited-recourse guarantee, limited to their pro-rata portion of the gearing in the project, where applicable.

** Assuming a 45% effective tax rate.

Investor example – live transaction

Section 12B
Section 12B

Notes:
1) Assumes partner is an individual paying tax at the 45% marginal rate and obtains 125% Section 12B allowance from SARS.
2) Assumes no gearing utilised at project level.
3) The pre-tax after-fee IRR for this ungeared example is 30% per annum.
4) Adding gearing will bring the returns to approximately 45% depending on the level and cost of debt. This however involves a limited recourse guarantee from the investor.

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Meet The Team

Team - Section 12B


Bradley Anthony

Managing Director: FAM

Bradley Anthony
Managing Director
Team - Section 12B


Neil Fourie

Fund advisor

Neil Fourie
Fund advisor
Team - Section 12B


John-Paul Dicks

Portfolio manager

John-Paul Dicks
Portfolio manager
Team - Section 12B

Bradley Anthony
Managing Director: FAM
Anton Louis

Anton-Louis Olivier
Investment committee member
Team - Section 12B

John-Paul Dicks
Portfolio Manager

Obakeng Mophosho
Multi - Strategy Analyst
Team - Section 12B

Neil Fourie
Fund Advisor

Looking to speak to us?

Ryan Jamieson

Ryan Jamieson

Head: Retail Sales (North & KZN)​

Ryan joined Fairtree in 2016 and is the head of Retail Sales. He has over 25 years of experience in the financial services industry. He joined Momentum in 1998, where he held various roles, such as investment marketing, sales and distribution, over 15 years. In addition, he led the national team of Investment Specialists at Momentum and served on Group Investment Committees. Ryan then joined Investec, where he continued to be involved in the sales, marketing and distribution of the Investec fund range. He returned to Momentum as head of Wealth Management, where he was responsible for the full integration of the investment philosophy, house views, fund solutions and wealth management proposition.