With so much on the plate of finance minister Tito Mboweni, such as trying to generate a little warmth into the SA economy, it’s perhaps unavoidable that a few crumbs will fall off. One recently did. It’s on Mboweni’s appointment of Dube Tshidi to “perform the functions of commissioner” at the Financial Sector Conduct Authority.
The appointment runs for three months until 5 November or until a new commissioner assumes office, whichever is the sooner. The search for a commissioner has so far taken National Treasury more than 52 months during which Abel Sithole, now at the Public Investment Corporation, was acting (pun unintended).
Tshidi had a long career at the Financial Services Board; so long that he’s several years past retirement age. The FSB was the predecessor of the FSCA where Tshidi, the former FSB executive officer, has headed the transitional management committee (2018-19 remuneration R7,5m).
Mboweni seemingly hadn’t attempted to test the FSCA’s internal waters. The first executive response didn’t take long.
Within a few days of Tshidi’s appointment, Caroline da Silva gave notice of her intention to resign. The FSCA divisional executive for regulatory policy, and previously FSB deputy registrar, the FSCA announcement of her resignation tersely stated that “at this stage Caroline has no plans on the next chapter of her career”.
Read into this what one will. DaSilva might or might not have been in the running to become at least a FSCA deputy commissioner. Nonetheless, the timing of Tshidi’s appointment and Da Silva’s resignation implies something less than coincidence.
More curious is timing that relates to a judgment in the Pretoria High Court. Although dated 13 May, it was only issued to the parties on 21 August. The main parties were attorney Tony Mostert and the Public Protector. Acting Judge Brad Wanless had denied Mostert leave to appeal against punitive costs previously awarded against him.
Strangely, 21 August came a fortnight after the Tshidi appointment. Of course, it’s possible that Mboweni was unaware of the judgment. However, it’s impossible that he was unaware of the matter that lay behind it.
This is because, in her report of March 2019, the Public Protector had instructed that “the Minister of Finance note my findings”. The report was on her “investigation into allegations of maladministration, abuse of power and improper conduct by the former executive officer of the FSB, Adv D P Tshidi, as well as systemic corporate governance deficiencies at the FSB”.
On publication the FSCA said that it intends to take the report on review, so damning are its contents and conclusions. Throughout the investigation, which focused largely on the curatorship of certain pension funds, Mostert and
Tshidi were joined at the hip (TT July-Sept ’19). A central issue was the curatorship and legal fees taken by Mostert and his law firm, estimated at over R240m during the six years to 2011. No further quantification was possible for subsequent years because both Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”.
Another issue was that Tshidi had threatened Sanlam and Alexander Forbes that he’d withdraw their operating licences if they persisted in resistance to Mostert’s demands. Early last year Mostert attempted to interdict publication of the Public Protector’s report. Not only was he unsuccessful but Wanless ordered that he personally pay the costs on the punitive scale of attorney and client.
Mostert had cited various funds under his curatorship as co-applicants. “It is difficult to understand why they are applicants herein,” the judge stated. “The court agrees that the pension funds and members thereof should not be mulcted on costs.”
In his decision this year, Wanless dismissed Mostert’s application for leave to appeal on the costs order “because of the character of the litigation, the conduct of (Mostert) and the impropriety on behalf of (Mostert) in the manner in which the litigation was pursued”.
For context, these judgments were inseparable from the still-surviving report of the Public Protector. In applying his mind to the Tshidi appointment, did Mboweni know or not know about them? Either way, an explanation wouldn’t be out of place.
There are two other little matters, of recent vintage, both also related to operating licences subject to Tshidi’s decisions. One is the unresolved saga of asset manager J M Busha over workers’ missing millions in retirement funds (see story below).
The other relates to retirement-fund administrator Akani. Notwithstanding requests in past years by the Pension Funds Adjudicator for the FSB/FSCA to review its operating licence, Akani has won a court victory over NBC for administration of a workers’ provident fund (see article ‘Litigation’ elsewhere in this TT edition).
On these recent examples of market conduct, Mboweni would do well to keep an eye on how Tshidi asserts his authority; for example, whether Tshidi has or will recuse himself from FSCA deliberations on disclosure of curator fees.
Beat around the bush
Credit to journalist Sabelo Skiti of Mail & Guardian for his persistence over months in tracking and exposing the regulatory scandal at J M Busha Asset Management. M&G reports: “Nearly R500m of workers’ pension funds has been stolen and invested in risky initiatives, including that of controversial evangelist Shepherd Bushiri.” Despite this, the FSCA has handed back to Busha his operating licence in the hope that he will return what he owes to the funds. The funds (see table) are entrusted with money for the pensions of more than 2m people in the electrical, metals and engineering sectors as well as municipal workers.
Bushiri, a self-proclaimed “prophet”, is now the subject of rape allegations against women. Busha is said to have ploughed R200m of the workers’ funds into the Bushiri company which operates hotel chains in Africa and Europe.
M&G also refers to investments in eSwatini and Nambia that cannot be recovered. “Busha took relatively small amounts from pension funds he was managing and used this money to invest in privateequity transactions under the name of his businesses instead of under the fund,” it says.
A spokesperson for the FSCA is quoted: “We are monitoring (Busha’s) actions on a monthly basis and will be in contact with the pension funds to ensure that the best possible alternatives are pursued…to ensure that the public is not in danger.”
Apples and pears
Thus it might be said of the Active versus Passive debate, inclined to flair when markets crack as they did in March. Because comparisons are odious, and inclined to be simplistic, the arguments cannot be conclusive.
There are passive funds that are largely active, and active funds that are largely passive. For any one investor, there’s room for both. And the arguments against active, that they are more expensive than passive which they cannot outperform net of fees, don’t necessarily hold up to universal scrutiny.
It depends on what’s being compared. Even to go passive requires an active decision into which index of the plethora available, as this accompanying Coronation slide illustrates.
In similar vein, Coronation has produced its annual stewardship report. Amongst other things, it shows that in SA last year this active manager had made voting recommendations on 3 104 resolutions at 195 shareholder meetings. Of the votes cast, 234 were against resolutions proposed by the investee companies.
Not too many passive managers can display comparable stewardship, contribution to share-price discovery, engagement on ESG criteria or entry into the unlisted space.
They all come at a cost. Investors decide whether they’re worthwhile.
Mark these words
It’s taken Covid-19 to give ‘impact investing’ a leg-up. From the mega-projects contemplated at state level to the more imminent formulated at institutional level, a common denominator is the approach to pension funds for investment in this category.
Regulation 28, which stipulates permissible exposures to respective asset classes, will have to accommodate it. Clearly, asset managers are rethinking the validity of traditional weightings in listed equities and bonds.
When Covid-19 is destroying employment, shrinking investable opportunities, attention rightly turns to redress. For instance, in recent months both NinetyOne and Stanlib have launched funds to assist businesses that have been hurt. At
NinetyOne it’s the R10bn ‘recovery fund’, set up with private equity company Ethos, where investors are offered the opportunity for commercial returns in supporting distressed companies that would otherwise be viable.
At Stanlib it’s a fund that will focus on investments “to increase economic capacity-building via transformational infrastructure”. There’s also to be funding for small and medium-sized businesses (SMEs) included in a “diversified pool of credit exposures” that’s part of a “broader drive for private capital into impact-themed investments”.
And then, concentrated solely on SMEs, there’s the Kisby investment fund headed by erstwhile banker Mark Barnes. With a range of strategic partners which includes asset manager Fatima Vawda of 27four and components of the diversified Lebashe group (the Arena media titles amongst them), it will be significantly driven by technology to administer multiplicities of small loans.
Barnes sees these SMEs as an asset class in the middle of the eco-system: “Let’s invest in real people doing business with one another, providing fairlypriced capital for new Alexandra businesses rather than Sandton office blocks.”
Amongst ideal requirements to qualify for a Kisby loan are an existing annual turnover of R100m with 20% annual growth post Covid and present ebita above R10m. Kisby sees itself as a bridge for companies that have slipped to lower credit ratings but have clear paths back, and those which are growing but have limited access to formalised capital markets.
Kisby’s immediate target is to raise R5bn from three or four major institutional anchors. If Barnes’ enthusiasm is as infectious as his presentation is articulate, it should be a piece of pie.
The latest Benchmark report records that, prior to Covid-19, impact investing was not top of mind amongst financial consultants. But this approach has “changed dramatically”. When questioned on the levers available to rebuild the SA economy, the research found, the most popular option was use of the large pool of unclaimed benefits in the industry to beneficiate poor communities: “This is a promising and potentially responsible use of monies that are unlikely to be reclaimed by the majority of members.”
The next three most popular responses all related to applying the capital of retirement funds to impact society and the economy via increasing asset allocations to sustainable infrastructure development, ESG investments and alternatives.
Coronavirus, disappointing investment returns and declining interest rates pose a triple threat to the US public pension system. It is haemorrhaging cash and heading for a record funding shortfall, reports FTfm.
It’s estimated that returns of US public pension plans averaged minus 0,4% over the 12 months to end-June, well below the 7,2% targeted by these schemes. Their weak financial position, which posed severe risks to the living standards of millions of employees and retired workers, was made worse because rising cash outflows led to more pressure on investment returns to meet future retirement payouts.
Only in the US?