Fees and more fees
Patrice Motsepe listed his African Rainbow Capital (ARC) Investments on the
JSE on 7 September with a subscription price of 850c. On the first day it closed at 830c, which was not unexpected. By my reckoning, a holding company should trade at a discount to net asset value (NAV). In this case, the NAV is 850c and a 10% to 20% discount is reasonable, making for a price of between 680c and 765c, which I would consider fair.
ARC holds about a quarter of its investments in listed companies, with the rest being unlisted. Therefore many are referring to ARC as a private equity investment. And, in many senses, it is. Although at higher risk, private equity can deliver better returns, but that also comes with a lot of fees. ARC will take 1.75% of the NAV every year in the form of fees (scaling down as NAV increases), while another 0.25% of the cash balance will be taken for cash management. On top of that, there are also performance fees.
I don’t like fees, and these seem excessive, so I am avoiding ARC entirely. If, however, you want some high-fee semi-private equity exposure, then wait for the discount price as mentioned above. ■
Patrice Motsepe Co-founder of African Rainbow Capital