Fees and more fees

Finweek English Edition - - Marketplace -

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

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