Ques­tions over new ve­hi­cle for in­vest­ing in BBBEE shares


In­vestors who see value and want to par­tic­i­pate in BBBEE share schemes with­out the has­sles of in­vest­ing di­rectly can now do so through a sin­gle ve­hi­cle. It’s called Ngonyama Cap­i­tal and was launched by new black as­set man­ager Carte­sian Cap­i­tal.

To en­sure that Ngonyama qual­i­fies as an in­vestor in the schemes, 51% of its shares will be owned by black share­hold­ers through an en­tity called Shumba. The re­main­ing 49% will be owned by white share­hold­ers through an en­tity called Ngala.

Ngonyama al­ready has R175m un­der man­age­ment.

“These shares of­fer bet­ter value than what the do­mes­tic main­stream share mar­ket of­fers,” says Anthea Gard­ner, man­ag­ing di­rec­tor of Carte­sian. “Over a three-year pe­riod, a rea­son­able ex­pec­ta­tion is a re­turn of 50%-70% higher than own­ing the equiv­a­lent JSE shares. As­sum­ing a 5%-10% per an­num in­crease in the value of the un­der­ly­ing JSE shares, in­vestors in Ngonyama could achieve a re­turn in ex­cess of 75%-100% a three-year pe­riod.”

A per­for­mance fee of 15% is levied for re­turns in ex­cess of 15% achieved, but black in­vestors will share in 75% of the per­for­mance fees gen­er­ated, which ef­fec­tively can­cels out their pay­ing of the per­for­mance fees.

As most of the un­der­ly­ing in­vest­ments in these schemes are geared and have fund­ing struc­tures, re­stric­tions and liq­uid­ity con­straints, in­vestors would be jus­ti­fied to have higher re­turn ex­pec­ta­tions to com­pen­sate for the additional sources of risk. In that re­spect Carte­sian’s ex­pec­ta­tions are that the shares will re­turn be­tween 25% and 35% per an­num.

To­gether Carte­sian and An­chor

Cap­i­tal man­age the as­sets as a port­fo­lio on be­half of Ngonyama, with ded­i­cated an­a­lysts re­search­ing the op­por­tu­ni­ties.

Carte­sian was started in Jan­uary this year by Gard­ner (for­merly of Mor­gan Stan­ley in Lon­don and African De­vel­op­ment Bank in Tu­nisia) and min­ing en­tre­pre­neur Mike Teke, who heads the house. Khany­isa Ngesi joined from Bar­clays in May as port­fo­lio man­ager and an­a­lyst. Ad­min­is­tra­tion is out­sourced while re­search is car­ried out by Carte­sian and An­chor Cap­i­tal.

Un­til last week when Carte­sian got its FSP li­cence, the house had been trad­ing as a ju­ris­tic per­son un­der the li­cence of R4bn-house An­chor Cap­i­tal, which also has a 20% stake in Carte­sian. On Carte­sian’s books al­ready is a R135m long-only ac­tive eq­uity in­sti­tu­tional man­date with a 2% tar­get re­turn above its bench­mark, the Swix.

With­out a track record in man­ag­ing money, how did Carte­sian man­age to raise R300m in man­dates?

“We both, in our per­sonal ca­pac­i­ties, have good rep­u­ta­tions in the in­dus­try, so in­vestors are ef­fec­tively for now only buy­ing and show­ing con­fi­dence in our names, but we’re also in­no­va­tive, which makes our of­fer­ing com­pelling to in­vestors,” says Gard­ner.

How­ever, there are ques­tions around the struc­ture of the Ngonyama ve­hi­cle and its in­clu­sion of white in­vestors. Says Craig Gra­didge, in­vest­ment and re­tire­ment plan­ning specialist at Gra­didge-Mahura In­vest­ments:

“I do not un­der­stand the need for them cre­at­ing Ngala. It seems like they are cre­at­ing an op­por­tu­nity for white in­vestors to gain ex­po­sure to BBBEE shares which, while it meets the let­ter of the law, seems to go against the spirit of the law. These deals have been cre­ated as part of the broader ob­jec­tive of BBBEE aimed at up­lift­ing pre­vi­ously dis­ad­van­taged in­di­vid­u­als. I think they could have stopped at Shumba, the need for Ngala is not clear to me.”

Gard­ner says that “by al­low­ing white in­vestors into our struc­ture, we are cre­at­ing liq­uid­ity and bring­ing the shares to their re­al­i­sa­tion of value, which ben­e­fits all share­hold­ers”.

Some schemes or com­pa­nies such as Them­beka Cap­i­tal, a broad-based black-owned and con­trolled in­vest­ment com­pany that fo­cuses on pri­vate eq­uity and BEE trans­ac­tions, re­quire that in­vestee com­pa­nies must have 100% black own­er­ship.

Gard­ner says in that case the com­pany is able to cre­ate sub­sidiary struc­tures that are 100% black owned to en­able in­vest­ment in com­pa­nies such Them­beka.

“As an as­set man­ager,” says Gard­ner, “we add value by know­ing the un­der­ly­ing and do­ing in-depth anal­y­sis of the ac­tual BEE struc­tures, which are not at all sim­plis­tic. We talk to man­age­ment and en­sure we un­der­stand the pe­cu­liar­ity at­trib­uted to each share. Even reg­is­ter­ing to trade the shares is a lengthy process and we do that for the in­vestor. Trad­ing and con­tin­u­ally eval­u­at­ing the share is cru­cial to un­der­stand­ing at what level the shares will deliver the best re­turns.”

Cur­rently Ngonyama is in­vested in the Phutuma Nathi, MTN Zakhele, Sa­sol In­zalo and Sa­sol BEE shares listed on the JSE, as well as Yebo Yethu and As­supol.

Mike Teke

Craig Gra­didge

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