The tan­gled Mr Brown

He tells a story fraught with con­tra­dic­tions

Finweek English Edition - - Cover - BRUCE WHIT­FIELD

AS FI­DEN­TIA founder and chair­man J Arthur Brown moved to deny wrong­do­ing in what cu­ra­tors be­lieve could be the cen­tury’s big­gest fraud, cracks be­gan to ap­pear in his care­fully mas­saged me­dia of­fen­sive. In a range of se­lected in­ter­views, Brown sought to cre­ate the im­pres­sion of a re­spon­si­ble as­set man­ager mis­treated by the fi­nan­cial reg­u­la­tors and me­dia.

When asked about the hun­dreds of mil­lions of rand the Fi­nan­cial Ser­vices Board (FSB) al­leges are miss­ing from the cof­fers of Fi­den­tia, he said it had been in­vested in private eq­uity and prop­erty in­vest­ments that had po­ten­tial for high growth. He said that had been done in con­sul­ta­tion with, among oth­ers, the trustees of the Liv­ing Hands Trust, which is re­spon­si­ble for the fi­nan­cial well­be­ing of the de­pen­dants of dead minework­ers.

How­ever, the FSB re­port into Fi­den­tia points to the po­ten­tial of se­ri­ous con­flicts of in­ter­est in the ad­min­is­tra­tion of the trust. The re­port says two Liv­ing Hands trustees – in­clud­ing pow­er­ful black em­pow­er­ment per­son­al­ity Danisa Baloyi, a di­rec­tor of Absa and other listed en­ti­ties – were also at the time direc­tors of Fi­den­tia Hold­ings.

Baloyi’s SA Women In­vest­ment Hold­ings is an em­pow­er­ment share­holder in Fi­den­tia Hold­ings. It con­trols Liv­ing Hands – the ad­min­is­tra­tor of Liv­ing Hands Trust. It’s a trustee of the Liv­ing Hands Trust.

The FSB re­port states: “This sit­u­a­tion has en­sured that the Fi­den­tia Group con­trols its client, the trust and all the en­ti­ties in­volved in the man­age­ment of the funds.”

The re­port also states that hav­ing two of the trustees – Hjal­mar Mul­der and Danisa Baloyi – as of­fi­cials of the ad­min­is­tra­tion com­pany and the as­set man­age­ment firm’s hold­ing com­pany places them in “an un­ten­able po­si­tion” in terms of their fidu­ciary du­ties as trustees.

In an in­ter­view on Talk Ra­dio 702’s The World at Six on Wed­nes­day, 14 Fe­bru­ary, Brown also sought to cre­ate the im­pres­sion that the private eq­uity and prop­erty in­vest­ments made with trust money had been in­de­pen­dently val­ued by big four au­dit firm Ernst & Young. The firm im­me­di­ately is­sued a state­ment dis­tanc­ing it­self from the claim, say­ing it had val­ued “cer­tain un­der­ly­ing as­sets” of just one sub­sidiary of Fi­den­tia As­set Man­age­ment – Bram­ber Al­ter­na­tive (Pty) Ltd.

Brown said he had of­fered to liq­ui­date the group’s as­sets and re­turn the cap­i­tal to in­vestors as an al­ter­na­tive to cu­ra­tor­ship – but that had been de­clined by the FSB.

Brown is renowned in the fi­nan­cial ser­vices sec­tor for pay­ing con­sid­er­ably over the odds for as­sets.

The con­cern is that the cu­ra­tors won’t be able to achieve the buy­ing prices for some of the as­sets Brown bought.

Con­cerns also ex­ist with re­gard to the as­set classes Brown claims to have in­vested in. Magda Wierzy­cka, CEO of Syg­nia As­set Man­age­ment, was in­stru­men­tal in the draft­ing of Reg­u­la­tion 28 of the Pen­sion Funds Act, which stip­u­lates that only 5% of prov­i­dent or pen­sion money can be in­vested in al­ter­na­tive in­vest­ment classes. “In the case of trust money it should be in­vested in cash or near cash to pro­vide ben­e­fi­cia­ries with a steady cash flow,” Wierzy­cka says.

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