‘03

INFRASTRUCTURE INVESTMENTS

The Old Mutual approach is that its clients require investments that not only meet a market competitive return but also meet set social objectives. Old Mutual is nevertheless clear that its primary objective is to achieve commercially attractive returns and then to have some form of social objective overlay.

Old Mutual has, through its infrastructure management activities, been able to find a number of investment opportunities that can meet the objective of achieving a competitive investment return, and at the same time meet a range of social investment objectives.

 Infrastructure investments present a solid case for inclusion in any long-term portfolio. They present an interesting form of portfolio diversification because they are both less volatile than most other investments and negatively correlated to them. They also provide a good hedge against inflation because they usually have a revenue profile which correlates well with inflation. In a sense, infrastructure investments secure an annuity-like income with good stock market diversification qualities, while at the same time assisting in the rebuilding of the country.

The bar chart shows the investment return achieved by one of Old Mutual’s infrastructure funds, the R800 million Infrastucture, Developmental and Environmental Assets Fund (IDEAS), to end December 2003, as compared to a target return of 7% per annum above the rate of inflation.

The Fund is invested as follows:

The IDEAS Fund’s performance is driven by the following infrastructure investments:

• New Limpopo Bridge (“Beitbridge”) - a toll bridge across the Limpopo river to Zimbabwe; 
• National Housing Finance Corporation - a wholesale finance provider to low-income home loan providers; 
• N3 Toll Concession - the N3 toll road from Heidelberg to Cedara; 
• New Limpopo Project Investments - the railway line between Beitbridge and Bulawayo, the Zambian Railway network concession and the Resano Garcia to Maputo rail concession; 
• Trans Africa Concessions - the N4 East toll road from Witbank to Maputo; 
• Telkom; 
• Infrastructure Finance Corporation - an infrastructure development financing institution; 
• Bloemfontein Correctional Contracts - a privately operated prison facility; 
• ACSA - the Airports Company of South Africa; 
• Bakwena Platinum Concession Company - the N4 West toll road from Pretoria to the Botswana border and the N1 North from Pretoria to Warmbaths; 
• South Africa Infrastructure Fund - a fund that invests directly in bulk infrastructure, the principal activity of which is to hold assets for investment purposes.
  

In addition to the IDEAS Fund, Old Mutual, jointly with Macquarie (Africa), manages the R718 million South Africa Infrastructure Fund (SAIF) and, also together with Macquarie (Africa), has recently raised sufficient interest to launch the African Infrastructure Investment Fund (AIIF) in an amount of R675 million.

Research shows that an increase of 1% in the stock of national infrastructure multiplies into an increase in GDP of 1%. It has also been Old Mutual’s experience that its investment in infrastructure has created significant numbers of jobs and has promoted the formation of many small and medium enterprises. Old Mutual’s policyholders are one of the AIIF’s anchor investors and have committed funding to the AIIF in an amount of R250 million.

BLACK EQUITY OWNERSHIP

Old Mutual’s demutualisation and listing in 1999 resulted in 3.2 million policyholders also becoming shareholders -arguably the largest and broadest equity-based empowerment transaction in the history of South Africa.

Current estimates put the level of direct black equity ownership in Old Mutual at 3% to 4%.

Old Mutual is committed to reaching the Financial Sector Charter target of 10% black direct ownership of the issued shares of the company by 2010.