I nve s to r ’s Notebook

investor’s notebook by Stephen Cranston

A RC ’s many machinations

@ s c ra n s to n

ARC needed to show that it would rat i o n a l i s e its two e m p l oye e benefits b u s i n e ss e s , Forbes and Sa n l a m Co r p o rate

t can’t have been much of a

Isurprise to anyone to see some corporate action between Sanlam and Alexander Forbes. After all, the major shareholder in both, African Rainbow Capital (ARC), needs to be seen to be taking action.

ARC, which is billionaire Patrice Mo t s ep e’s main investment vehicle, has traded at a discount of up to 70% to its NAV for years. And it will continue to do so as long as it is seen as an unfocused investment trust. There has been progress at its largest holding, rain, which is aggressively rolling out its 5G network. And TymeBank, in which it is the biggest shareholder, is acquiring other high-profile investors such as Naspers associate Tencent and the London-based CDC Group.

But ARC needed to show that it would also rationalise its two competing employee benefits businesses, Forbes and Sanlam Corporate. Earlier in the year ARC brokered the deal in which Sanlam bought Fo r b e s ’s group risk and retail life underwriting units. Forbes is now entirely concentrated in capital lite businesses such as fund administration, consulting and thirdparty asset management.

Forbes is already the largest administrator of standalone pension funds. Old Mutual has closed its standalone administration business and now only manages umbrella funds. When funds convert to umbrellas they no longer have the right to elect the board of trustees, but because of the increased scale, costs usually fall. Sanlam, instead of forcing clients into its umbrella, has sold its standalone retirement fund administration business to Forbes.

Forbes has a bombastic corporate culture which is not to everyone’s taste. But if the transition is successful it could increase the Forbes retirement fund member base by 40%. This will give it rivers of cash to scale up digital development, giving members more information in real time about their fund holdings. And it would also give an opportunity, somewhat by stealth, to give clients financial advice.Sanlam and Forbes will now only compete as umbrella fund providers. There would be competition considerations if these merged as it would be the largest umbrella fund provider in SA by far.

A responsible choice Forbes certainly can’t claim to be best of breed when it comes to retail linked investment service providers (Lisps). There has been very little investment into its Alexander Forbes Individual Client Administration (Afica), used exclusively by the Forbes financial planners. They aren’t obliged to use it, but it is a convenient place to park client assets. Forbes decided to merge Afica with a larger Lisp with the capability to run on more modern systems. After months of due diligence Forbes chose to sell to, you guessed it, Glacier by Sanlam. There was always an outside chance that Forbes would n ot c ho o s e Sanlam. But that was about as likely as a Forbes consultant recommending to their clients a multimanager other than Alexander Forbes Investments. But I wouldn’t call Glacier an irresponsible choice. It is a firsttier Lisp and will be around long after some of the Antarctic glaciers have disappeared. It was useful to see ARC doing another piece of housekeeping before the end of 2021. It owned 25% of employee benefits service provider EBS and has strong-armed its fellow shareholders to sell the business to Forbes. EBS offers back office services to self-administered funds such as Sentinel, the largest mineworkers’f u nd . It will be run separately from Fo r b e s . But, of course, it will encourage its clients to use other services on the Forbes menu. x

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