INVESTIGATION

Shades of Fidentia? Please not!

Again, it’s workers who stand to be hurt the worst. Trilinear has a lot of explaining to do about its investment in Pinnacle.

Flogging off assets to avoid liquidation, the share price of golf-resorts developer Pinnacle
Point nevertheless continues to bounce on its belly. Hovering between 1c and 2c a share is a far cry from the 100c peak seen in 2009. Pinnacle’s decline has potentially horrible consequences for the pension funds of Cape textile workers and for Trilinear Investment Managers which had put them into it.

It’s been significantly with the money of these workers’ funds that Trilinear had built a 48% stake in Pinnacle. First, it injected R100m of new funding for a 9% interest. Later, in February last year, it paid R150m for shares that Absa was only too happy to sell despite a huge loss on the R1,15bn that Absa had resentfully paid for them.

The Trilinear investors would now have a R250m exposure to Pinnacle. How much they’re likely to
recover – or able to prise from illiquid shares for benefit payments to members of pension funds – is moot. They’d gone in at over 5c a share. On paper, they could get out at 1c to 2c. But this presupposes that there’d be buyers for so large a block, which there aren’t, and it means that they’d exit with most of their capital vapourised.

There’s no way that pension funds should be in such a predicament. But it remains to be seen whether Trilinear’s 48% holding in Pinnacle was financed by a number of pension funds, each adhering to prudential guidelines, or whether fewer funds had exceeded them. In either event, answers will be expected from Trilinear executive chairman Sam Buthelezi for the risk to which he exposed the funds. Also with some explaining to do will be the funds’ trustees on the precise mandates they gave to Trilinear, if indeed they gave it one, for it’s speculated that a particular individual might have acted without any proper mandate at all. Richard Kawie, a consultant to the SA Clothing & Textile Workers’ Union, could be in the firing line. Regulation 28 of the Pension Funds Act, as it applied at the time, restricted the investment of a fund’s assets to a maximum 10% in the equity of a company that wasn’t in the “large capitalisation” category (such as a
major bank or mining house). Pinnacle, listed on the JSE’s alternative exchange for smaller companies, might cause it more appropriately to fall into the “other assets” category (such as private equity) where the regulation allowed a 2,5% maximum.

Then there’s s5(2) of the Act itself, providing tha tfunds must hold their own assets.

Low point for Pinnacle

Where they’re held in the name of a nominee company, the Financial Services Board (FSB) must approve the nominee. The assets may
not be held in a trust, for trusts don’t fall under the Act and aren’t regulated by the FSB but by the Master of the High Court.

This was forcefully highlighted in the Fidentia debacle. It was the placement of assets by Fidentia in the Living Hands Trust that complicated and contributed to the hardship of non-withdrawals from Fidentia for beneficiaries of the Mineworkers Provident Fund. Indications that Trilinear had involved a trust are evident from an application launched last year, and apparently settled out of court, by Pep Limited Provident Fund against Trilinear Investment Managers and “Trustees for the time being of the Trilinear Empowerment Trust (TET)”. According to the application, the trust was to be managed by Trilinear which makes investments on behalf of the Pep and other funds “in terms of written mandates...for the management of, inter alia, private equity investments”.
Amongst these funds, it said, were the

• Cape Clothing Industry Provident Fund;
  
• Textile Industry Provident Fund;
  
• Textile Open Provident Fund;
  
• Textile & Allied Workers Provident Fund.

The Pep fund wanted an interim interdict to restrain Trilinear and/or the TET trustees from paying out any monies “to an investor” without first making provision for repayment of R64,5m plus interest to the Pep fund.

It claimed that, without authority, Trilinear had paid this amount into a bank account of the TET trustees and had not honoured its undertakings to pay the money back to the Pep fund.

The R64,5m appeared to be a bridging-finance loan from the Pep fund to Trilinear to assist Trilinear’s purchase of the Absa shares in Pinnacle. Although the affidavit of the Pep fund’s principal officer omitted to append certain information because Trilinear considered it “highly sensitive”, it questioned the accuracy of disclosures in the TET investment portfolio.
The FSB is investigating the whole Trilinear matter. Inclusive of Pinnacle and other investments, notably in Grand Parade property stock and Group 5 economic empowerment partner iLima which also turned sour, it involves some R420m of textile workers’ funds put into TET. Jurgen Boyd, FSB executive in charge of retirement funds, expects the investigation report to be completed during the course of June.