Issue: June - Aug 2013


Trials for Trilinear

Civil actions on their way.

First, and as an aside, let it not be said that as a rule trustees aren’t generously paid. According to the latest Sanlam benchmark survey, few retirement funds pay their trustees anything at all.

It turns out, however, that those who’d previously sat on the board of the Trilinear Empowerment Trust –hopelessly bust and without proper records – were each receiving attendance fees of
R69 000 per meeting.

TET is at the centre of a transactions web that’s left the retirement funds of Cape clothing workers depleted by around R200m (TT Sept-Nov 2012). Under new trustees, it’s set to recover as best it can. High on its priorities is Canyon Springs, the private company of former deputy cabinet minister Enoch Godongwana and his wife, into whose affairs a Companies Act inquiry has been concluded. Some findings:

  • Canyon Springs had been given a R94m loan even though there was no loan agreement in place at the time between it and TET. A back dated agreement was finalised two years after the proceeds has been paid over;
  • In another transaction, Canyon Springs received R29,3m from TET. Of this, R2m went to a company of Richard Kawie who’d “been influential” in making TET investment decisions. Another R15m went to a shell company from which it was onlent to a private trust of Sam Buthelezi who controlled the Trilinear group;
  • In 2008 Canyon Springs withdrew R12,5m from TET. This was then paid to Trilinear Specialised Finance for advisory fees. On the same day, R11m was transferred from TSF to Trilinear Asset Management. In turn, TAM paid a settlement of R11m to the Public Investment Corporation (Kawie taking R1,5m as a facilitation fee).

TET plans to issue summons for over R150m against those implicated: Kawie, Buthelezi, the Godongwanas, Mohan Patel (a Canyon Springs director) and Irwin da Gama (who’d signed simulated loan agreements and borrowed some money for himself). They can be held personally liable without limitation on liability.

Kawie and Buthelezi are also awaiting criminal trial. They wanted to enter a plea bargain, but this would presumably require agreement from the TET trustees.

The retirement funds of the clothing workers have been denuded of an estimated R200m. The SA Clothing & Textile Workers Union has indicated that it might be able to use its own reserves for their replenishment.

Say on pay

Thanks very much, Public Investment Corporation. By disclosing the reasons for its proxy votes on behalf of the GEPF against the remuneration of directors, it’s stirred a hornets’ nest that won’t be unstirred. For the most part, the stings are in the lack of disclosure on the key performance measurements for the award of bonuses and incentives.

This applied in the majority of companies where the PIC exercised proxies from October to March: Afgri, Peregrine, Shoprite, Northam, Wilson Bailey, Aveng, Eqstra, City Lodge, Rainbow Chicken, Amalgamated Appliances, Country Bird, Metrrofile, Super Group, Steinhoff, Discovery, African Bank, J D Group and Sappi.

Either there is disclosure or there isn’t. The test is much more objective than on whether remuneration is considered excessive. This was found in only two instances, with the Shoprite and MMI chief executives, both of which can be subjectively argued. Maybe that’s the point: to get argument started, for attackers and defenders to justify their positions.

What’s healthy is bringing it into the open so that King III ascends from window dressing. The rider, though, is to distinguish between corporate governance and Companies Act issues.

On the former, its right that shareholders send messages; they have no fiduciary duty to the company or to other shareholders. On the latter, the running of the company remains with the board; shareholders can only approve or reject company remuneration policies and pre-approve directors’ fees, not salaries. This could well be the next round for argument.

Shot in the foot

Just who are shareholders? Almost invariably, pension funds are amongst the largest. And who are members of pension funds? Millions of people, black workers significantly amongst them.

Which illustrates why, in this sense, strikes are counter-productive. The 100 biggest shareholders in Amplats, for instance, include the Mineworkers Provident Fund and the SAMWU National Provident Fund. There’s a host of others predominantly for workers, from various municipal pension funds to the provident funds of the motor and the private-sector security industries.

In the past year, the market capitalisation of Amplats has fallen by 41%. Were fund members only to consider the effect of strikes on their savings.

Shareholder inactivism

For all that, the latest Sanlam benchmark survey finds that 78% of respondents have not requested information on how their asset manager has voted on their funds’ behalf and 83% did not engage their asset manager on how they voted at shareholder meetings.

Worse, despite PF 130, 73% of funds do not have an investment mandate with asset managers that include voting principles. Most funds have never even debated proxy rules.

Better, 43% of funds have ESG policies in place and 39% have been influenced by the Code for Responsible Investing (CRISA) in setting their investment policy statements.

IRF? What IRF?

Finance Minister Pravin Gordhan wants to call a meeting of trustees for a discussion on National Treasury’s proposals for retirement reform. It should be a simple matter of him picking up the phone to the Institute of Retirement Funds and asking it to send along a representative bunch.

A simple matter it won’t be, such is the state of the IRF’s disarray (TT March-May). It looks to be worsening by the day. That much is evident from questions put to the IRF which, although it had promised to answer after its May 14 board meeting, hasn’t done so:

  • Does the IRF at present have a functioning board? If so, who does it comprise?
  • What response have you had to your invitation of March 20 for IRF members to serve on the board? How many CVs did you receive (as per the invitation), who adjudicated them and on what criteria, and who was selected?
  • Of existing IRF members, how many have so far renewed their memberships i.e. as an absolute number and as a percentage of existing members?
  • Will there be an IRF conference this year? If so, when and where will it be held; what will be its theme, who will be the main speakers, and who is organising it?
  • Presuming that the conference is to be held, have you begun to canvass exhibitors? If so, which potential exhibitors have so far indicated that they will support it?

Bashkar Latchman, a second vice president and co-founder of the IRF trustee committee, has separately commented in his personal capacity on why earlier this year he’d resigned from the IRF board after having served on it for many years. Amongst his reasons were “the lack of respect shown to fellow directors, the lack of upholding the IRF constitution and the lack of due process”. There were also breaches of confidentiality and unfounded allegations by some directors against others.

He sets out a number of other reasons “because it is critical to appreciate that the sad state of affairs is not the making of all the directors”.

Fortunately, all is not lost. Forget the IRF and rather anticipate the prospect that there’ll soon be a new body to take its place. The more it involves the Principal Officers Association and the trade unions, the better for inclusive participation of trustees as well.

Energy boost

Metal Industries Benefit Fund Administrators has signed an agreement with Mergence Investment Managers to invest up to R1bn in the renewable-energy sector.

MIBFA represents the interests of over 400 000 active members in the Engineering Industries Pension Fund and the Metal Industries Provident Fund, collectively the largest private-sector retirement fund with assets in excess of R90bn. Mergence, a black-owned asset manager, focuses on impact investing.

The R1bn will be invested in the Mergence fund which provides debt financing to a number of independent power-producer projects approved by Eskom in terms of the national renewable energy programme announced by government.