Futuregrowth stops SOE funding

After recent public in-fighting between state owned enterprises (SOEs) and Treasury, asset management firm, Futuregrowth, has decided to withdraw funding from some of the country’s biggest SOEs.

“We came to an investment decision that, as fiduciaries for investors’ savings, we could not provide additional finance to some of the largest SOEs without having deeper sight of, and comfort around, their governance, decision-making and independence,” stated Andrew Canter, chief information officer for Futuregrowth.

The list of parastatals include Eskom, Transnet, the South African Roads Agency (SANRAL), the Industrial Development Corporation of South Africa and the Development Bank of Southern Africa.

Reasoning behind the decision has largely been attributed to the chaos that has been displayed at governmental level. From the confusion around a recent announcement that President Zuma is set to directly run a committee overseeing state owned projects to Futuregrowth disagreeing with Eskom CEO Brian Molefe’s stance on renewable energy.

While the recent sequence of events around these parastatals and their challenges, both financially and leadership wise provide reasonable cause for concern and action, many remain of the opinion that Futuregrowth could have handled the announcement better. For one, the asset management company reportedly failed to inform the affected SOEs of their decision before making the public announcement.

Canter, however, proceeded to address this as he stated: “Notwithstanding a range of good reasons for a speedy dissemination of our view, in light of the fallout we must frankly concede that a more measured approach of direct consultation with each SOE, before contemplating public comment, would have been a fairer process.  I would like to personally apologise to each of the SOEs concerned, and their respective government Ministers, for my failure to ensure a fair, one-on-one engagement.”

He further acknowledged that though announcements of this nature are nothing new, this one in particular created quite a stir.

“The unintended consequences on others’ has been such that it demands some reflection on our part,” Canter added.

Old Mutual weighs in

Caught up in the media storm, was owner of Futuregrowth, Old Mutual, who allegedly was also not informed of the asset management company’s decision prior to the public announcement.

“Yesterday’s comments by Futuregrowth do not represent the broader views of Old Mutual. We respect the independence that fund managers need to deliver investment performance for clients, and believe that a more constructive model of engagement is needed and necessary to build and increase socio-economic development and drive financial inclusion in our country. We will engage the fund manager around these issues,” explained Old Mutual.

The insurer further reiterated their views on building relationships with SOEs. “Old Mutual values the broad and deep relationships it has developed with SOEs over many years. These relationships have been key in building and increasing socio-economic development and driving financial inclusion in South Africa.

“Old Mutual believes that public-private partnerships are critical for much-needed and shared growth in South Africa and we will continue to play our part in enabling that.”

That being said, they remained clear on the mandate that Futuregrowth have to make independent investment calls where their clients are concerned.

ASISA response

Public pressure was also put on the Association for Savings and Investment South Africa (ASISA) to weigh in.

“Investment managers must make their own investment decisions. ASISA is an industry body mandated by its members to deal with industry issues, which include policy, regulatory and legislative matters. The Association cannot dictate where members invest and where not. That would be considered collusive behaviour, which is not only undesirable, but also illegal,” stated ASISA.

Leon Campher, chief executive officer (CEO) of ASISA added: “Investment managers do not actually own the assets that they manage. All assets under management represent the savings of ordinary South Africans who, via regulated products such as retirement funds, funeral policies, and unit trusts, have entrusted their money to the investment manager to be managed in a responsible manner.”

It is with this background that it is considered the fiduciary duty of investment managers to invest the money where based on research and perception they will achieve optimum results.

Campher further highlighted that while ASISA has no grounds to get involved in the in the decisions of individual member companies, the association has expressed concerns about Treasury.

“Undermining the National Treasury would have profoundly negative effects on all people in South Africa, with the poor and working class most exposed. We are deeply concerned about the current events involving National Treasury and some of the SOEs,” says Campher.

While Futuregrowth remain confident in their decision that they were acting in their clients’ best interest, the decision will no doubt have a big financial impact on the affected state enterprises.

Eskom being one of the more prominent ones on the list have already been the subject of many headlines recently in light of their financial struggles with debt owing to them from various municipalities, as also their declined application for a tariff increase.

While it is concerning to think on the financial state that the energy carrier will now be in after losing such a large amount in funding, this could also very well be the needed push for them to start making the necessary changes.

“We are pleased that most of the relevant SOEs have engaged and shown a willingness to have deeper discussions about their governance, decision-making and connectivity to spheres of government. Most of the SOEs, at their own discretion, are taking the lead by engaging with investors quickly and proactively,” Furturegrowth stated.

“For others who feel aggrieved by our public stance, please accept that our intentions were sound and fiduciary, and the decision was ours alone. We remain committed to partnership with the SOEs in funding South Africa’s development.”