Disappointing Alexander Forbes returns to JSE

PENSION fund giant Alexander Forbes will relist on the JSE on Thursday, seven years after being bought out during the private-equity rush of 2007.

Alexander Forbes was delisted when it was bought by a consortium, including locally based private equity groups Actis and Ethos, for R8.2-billion.

On Friday, the group said it would be relisted at R7.50 a share, which puts its value at R9.7-billion.

This suggests it will have made a R1.5-billion profit, which after adjusting for inflation over seven years might not have been as much as expected.

There were extenuating circumstances. Soon after the Actis buyout, the financial crisis struck, which hiked the cost of repaying money borrowed to finance highly leveraged private equity deals. Chris Steward, head of research at Investec Asset Management, described the returns made by the Actis consortium as “pretty modest”.

Steward said that Alexander Forbes’s performance, compared with that of the market, left a lot to be desired.

The JSE’s All Share index made far higher returns, climbing 62% in the past three years.

“I don’t think it has been a particularly good transaction for the participants in the pri- vate equity takeout,” said Steward.

To make matters worse, some of the private equity investors, including the Ontario Teachers’ Pension Fund, were foreigners, and their returns were battered by the fall in the rand against the dollar over those five years.

Steward said that in dollar terms returns made were “less than modest”, partly because the timing, shortly before the financial crisis, was “less than opportune”. But with the debt stripped out, the group’s performance appeared solid. For the year to March, its operating profit rose 21% to R932-million.

When it lists, Alexander Forbes Preference Share Investments will hold 27.3% of the shares, investment company Mercer Africa 14.9% and Ontario Teachers’ Pension Fund 5%.

Alexander Forbes Preference Share Investments was a special-purpose vehicle set up in 2007. It remained listed on the JSE after the buyout, providing an entry point into the pension fund administrator for public investors, including large institutions such as Stanlib.

Analysts rate the group as a reasonably solid annuity income generator, but doubts remain about whether it can grow fast enough without making big acquisitions. The market expects it to generate up to R750-million in earnings a year.