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Young Lions Feast At The Top Table

They are young, fearless, taking on a difficult market—and they’ve amassed a portfolio worth millions in a matter of months. How did they do it?

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They are fresh-faced, full of ambition and look like they could be on their way to a rock concert—instead, they are on their way to a fortune.

In just 14 months, they’ve managed to beat the odds, and their peers, to amass just over $385 million in assets in a $19-billion property market in South Africa.

Sesfikile Capital, which means “we have arrived” in Xhosa, is a young company in more ways than one. Evan Jankelowitz is the eldest, aged 32, Mohamed Kalla, 29, and Kundayi Munzara, 28.  Together they’ve beaten the benchmark of the property business, the South African Property Index, in times of recession and doubt.

Sesfikile Capital, which opened its doors in December 2010, manages institutional capital on behalf of pension fund clients in domestic and international property listings.

It wasn’t easy. In the first four months of their business, they had zero assets to manage.

“We used to look at our monthly statements and we had an expense statement, not an income statement! April 2011 is when we got our first mandate, which was $1.2 million—not a great deal, but at least that gave us the ability to start,” says Munzara.

If that was a surprise—10 months later came a shock. Sesfikile Capital had set a target of $257 million for the first year; instead they got $385 million. The company has reaped the benefits of property coming into its own as an asset and pension funds also started to pay a lot more attention to listed property.

“It’s by no means a pushover sector and we have sleepless nights when the markets don’t always go our way; but the truth of the matter is we’re so involved and enjoy what we do. It’s a challenge we’re up for,” says Jankelowitz.

“It’s also difficult in this sector because it’s small and relatively illiquid. There’s a lot of competition out there, so you have to work pretty hard to beat the average,” Kalla adds.

South African property economist Professor François Viruly says Sesfikile Capital’s portfolio is a substantial one to be created in such a short time. He says there are significant bargains to be had in the property market in South Africa and the launching of new property funds offers good opportunities.

Sesfikile Capital says making sense of what is happening globally is another issue they face. The constant news flow on the euro zone and other global political issues affect equity markets and is something they’ve come to work prepared for every day.

The South African commercial property market has adjusted from its peak in 2005 and 2006. The focus at present is on maintaining tenants and keeping operating costs under control. But the number of new players entering the South African market reflects the opportunities here and further afield.

“If you think of the big oil countries like Angola, Ghana and Nigeria, for instance, there’s a big shortage of stock there. So at this point, the stock actually has to be built. And the guys who are really doing that are probably the infrastructure and private equity funds; we’re more a second-round investor, where we invest in existing stock that provides rental,” Munzara says.

Viruly says a slowdown in returns should be expected in 2012, reflective of relatively high vacancies in the commercial property market. There is also some pressure on rentals at the moment and the focus of property managers is to ensure that incomes are maintained. The rise in municipal rates and taxes and the rising cost of electricity are also having an impact on returns in the property market.

Sesfikile Capital is ready for rough waters, though.

“The volatility in equity markets has seen pension funds and investors look towards more income-driven assets and both fixed-income and property have actually benefitted from that. And there is very little evidence to suggest that investment in property has actually been hampered by the recession,” Kalla says.

“It reshuffled the whole market and allowed for cheaper entries into property. I’ve personally seen a lot more pension funds looking at this space—there has been more focus on property than there has been in the past,” Jankelowitz adds.

South African property continues to demonstrate relatively strong performance when compared to equities and bonds, according to Viruly. The densification of South African cities continues to offer opportunities, especially in the retail and residential sectors.

Sesfikile Capital has just launched a unit trust, which will focus on the retail market and invest in the listed property sector. The company is launching a global fund as well.

“Our numbers are looking good and there’s no reason to think we can’t continue in this manner,” says Jankelowitz.

The young lions appear ready to roar.

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