Our Investment Approach: Sectors, Specialists, and Capital Protection

Previously, we outlined private credit and asset-backed finance. Private credit refers to lending outside the banking system, while tangible assets secure asset-backed lending.

What actually happens during a private capital deal? Who makes the decisions, conducts site visits, and determines which opportunities move forward?

This article is about the middle bit: the people, the process, the decisions behind the scenes at Fedgroup’s alternative asset management business.

A real asset manager, not a fund of funds

We begin with an important distinction that is often overlooked.

Some investment managers raise money and then allocate it across other people’s funds. They’re fund of funds managers. They don’t pick the individual deals. They pick people who pick deals. That’s an extra layer between you and what your money is actually doing.

Our approach is different.

We originate deals directly, assess borrowers in-house, and manage the entire financing process from structuring to ongoing oversight. Our funds are Special Purpose Vehicles (SPVs), each established for specific deals. Your investment is linked to real assets with a transparent chain of title to the underlying loan.

This approach improves the quality of information we receive. When directly involved, we identify issues early through site visits, financial reviews, and regular communication, rather than relying solely on third-party assessments.

Four sectors, four sets of specialists

We invest across four sectors: Property, Agriculture, Renewables, and Movables (equipment, vehicles, and industrial assets).

We focus on these four sectors because each involves tangible assets that can be valued, monitored, and recovered if necessary. This provides investors with transparency and reassurance. These sectors also offer predictable cash flows and physical collateral, supporting stable returns and capital protection. Additionally, traditional banks often overlook mid-market businesses in these areas, creating unique investment opportunities.

Here’s a brief look at each.

Property

The most established of our four verticals. We provide senior secured debt for commercial, industrial, and residential property developments, including full capital stack financing for developers, as well as more specialised strategies such as senior living communities.

Property is a well-understood asset class with established valuation methods and active secondary markets. Its physical nature ensures the asset remains recoverable.

Agriculture

We finance businesses throughout the agricultural value chain, including primary production, processing, packaging, cold storage, distribution, and agri-tech operations.

Agriculture works well for asset-backed lending because the businesses have tangible collateral (land, equipment, crop in the ground) and predictable revenue cycles tied to harvests and off-take agreements. South Africa is a net agricultural exporter, and food security is a growing global concern, so the demand side is durable.

Renewables

We develop, finance, and operate distributed renewable energy infrastructure, primarily commercial and industrial solar installations under long-term Power Purchase Agreements and Instalment Sale Agreements. Our activities also include embedded water and waste recovery.

South Africa’s unreliable grid has increased demand for on-site generation. Businesses with solar PPAs benefit from inflation-linked, predictable revenue streams. The assets are installed on-site and have well-understood performance characteristics, making cash flow modelling straightforward.

Movables

We finance equipment, vehicles, commodities, and industrial assets through instalment sales, leases, working capital facilities, and trade finance. This includes construction equipment, transport fleets, manufacturing machinery, and commodity-linked transactions.

Movables is a broad category, but each facility is secured by a physical asset that can be identified, valued, and recovered. Equipment has serial numbers, vehicles have registration papers, and commodities have warehouse receipts.

Why specialists matter

This is where practical expertise becomes essential.

While financial statements provide historical performance and liabilities, they do not reveal operational details such as optimal crop density, the impact of new construction on solar installations, or the adequacy of a transport operator’s maintenance schedule.

Such insights come from professionals with direct industry experience.

Our agriculture team consists of individuals with direct farming or agribusiness backgrounds. They understand seasonal cycles, operational risks, and can distinguish between well-managed and problematic operations. When evaluating borrowers, they assess both financials and operational competence.

The same applies across all four verticals. Our property team has extensive experience in commercial property. Our renewables team understands solar engineering and energy markets. Our movables team knows equipment lifecycles and residual values.

This sector expertise enables us to identify issues early in the process. By the time a deal reaches our investment committee, it has been thoroughly evaluated by someone with deep industry knowledge and an understanding of local conditions and specific risks.

Choosing a generalist increases exposure to risks that specialists can identify early. Without deep sector knowledge, issues such as misvalued collateral or overlooked operational weaknesses may go unnoticed until it is too late. This can result in missed warning signs, delayed interventions, and higher potential losses, ultimately undermining expected capital protection.

How we pick partners: test first, then go deeper

We take a deliberate, phased approach to building relationships with the businesses we finance, starting cautiously and deepening over time.

The initial facility for a new borrower is typically a straightforward, asset-backed senior loan with conservative terms. This low-risk approach allows us to assess the borrower’s communication, reliability, and financial accuracy.

A single strong quarter is not sufficient. We evaluate performance across seasonal fluctuations and challenging periods. Lending over multiple cycles provides a comprehensive view of how operators manage pressure.

For partners who demonstrate reliability through debt cycles, we may offer more flexible financing options, such as mezzanine debt, structured finance, or equity investments. The relationship then evolves toward a true partnership.

As our confidence in a sector or operator grows, we seek adjacent opportunities. For example, a property developer may require financing for a rooftop solar installation, or an agricultural processor may refer us to supply chain partners in need of working capital.

As a result, we avoid making significant commitments to unproven relationships. By the time we invest substantially, we have typically worked with the business through multiple transactions and challenging periods.

How risk is managed

Asset backing forms the foundation of our risk management, but additional measures are also in place.

We don’t lend the full value of the underlying assets. Typically, we lend at 60–70% of the asset’s appraised value, providing a substantial buffer from the very beginning. If asset values fall, this buffer absorbs the decline before our capital is at risk, making the protection tangible and visible for investors.

Even in worst-case scenarios, such as a sharp downturn in asset values or a sudden increase in defaults across the portfolio, our layered risk management processes are designed to protect investor capital. If several borrowers default at once, we take legal action to recover and sell the underlying assets. While rapid market downturns may reduce recovery values, the initial lending discount usually provides enough margin to cover most, if not all, of the capital advanced. In the rare event that recoveries are lower than expected, our diversified approach across sectors and borrowers helps prevent any single event from threatening the entire fund, and supports capital preservation even in challenging conditions.

Our team conducts site visits, inspects equipment, attends board meetings, and maintains regular contact with operators. These activities often reveal issues such as deferred maintenance or operational pressures not evident in financial reports.

Our close involvement with assets and operators allows us to identify potential issues before payments are missed. Operational signals often indicate cash flow pressure before it appears in financial statements. Staff always remain engaged and address emerging risks promptly.

We diversify within each sector by allocating capital across multiple borrowers and geographies. This approach ensures that a single underperforming deal does not impact the entire fund.

Loan repayments are tailored to match each borrower’s cash flow patterns. For example, agricultural processors with seasonal revenue receive repayment schedules aligned with harvest periods, reducing the risk of default due to timing mismatches.

Separate teams handle deal origination and approval. Credit committees, loss control processes, and external auditors operate independently from the deal-making team.

Why do businesses come to us instead of going to a bank?

If these businesses have strong assets, why do they not secure bank loans?

Some businesses could obtain bank loans, and some eventually do. However, there are compelling reasons why mid-market businesses choose private capital, and specifically Fedgroup.

After the global financial crisis, banks tightened lending criteria and concentrated on larger, simpler transactions. They largely abandoned the mid-market space (facilities roughly between R10 million and R500 million, backed by real assets but requiring operational understanding to underwrite). Not because the deals were bad, but because banks found them too complex for their standardised processes.

A recent example: Take GeT Metal Group. They started in 2013 as a small scrap metal operation in the Western Cape. Over a decade, they built a vertically integrated business: metal recycling, billet manufacturing, and a full-scale foundry, now spanning over 300,000 m² across two provinces and exporting steel billets into African and Asian markets. That kind of operation doesn't fit neatly into a single lending category. It needs property finance for its facilities, equipment finance for its plant, and energy finance for its operations. A bank would route that through three separate departments, each running its own credit process. We provided nearly R240 million in private capital facilities structured across multiple asset types to match the way the business actually works. As GeT Metal co-founder Ebrahim Khan put it, Fedgroup "understood our vision" rather than trying to squeeze them into predefined lending boxes.

This is the complexity gap, where our direct, industry-informed approach enables us to support strong businesses that standardised processes often overlook.

We possess industry knowledge that banks may lack. For example, a bank’s credit committee may not know how to value a commercial mushroom farm or assess the risk of a solar PPA portfolio—for borrowers in specialised industries, partnering with an informed lender results in faster decisions and fewer misunderstandings.

Private capital also offers greater speed. We can structure tailored facilities to meet a borrower’s specific needs, which is critical when responding to time-sensitive opportunities.

And some businesses have complex operations that span multiple asset types. For example, a manufacturing company may require property finance for its factory, equipment finance for its machinery, and solar finance for its rooftop installations. Banks typically address these requirements through separate departments, each with its own process. In contrast, we provide integrated solutions across all asset types, allowing us to support the full scope of a client's needs. The best lending relationships grow into something more than transactions.

The bottom line

Asset-backed lending is straightforward in principle: lend against real assets, charge interest, and recover assets if necessary. The effectiveness of this model relies on execution, specifically the expertise and judgment of those assessing each deal.

Over 35 years, we have built the infrastructure, relationships, and specialist teams necessary for this approach. We originate deals directly, assess them with industry expertise, closely monitor assets, and structure capital to align with each borrower’s business needs.

None of this eliminates risk. Businesses fail. Assets depreciate. Markets shift. But a disciplined, specialist-driven approach to asset-backed lending is designed to limit losses and improve recovery when things go wrong.

For investors, the key takeaway is that the quality of a private capital investment depends on decision-makers’ proximity to the assets and their ability to distinguish strong opportunities from weak ones.