BPOPF vs. CMB, & the winner is.......

02 Sep 2018

The protracted battle between the biggest pension fund in the country and its former fund manager finally came to an end this month.

This week, the Botswana Public Officers Pension Fund (BPOPF) emerged victorious over Capital Management Botswana (CMB) following conclusion of the arbitration between the concerned parties. With the arbitration ruling in favour of BPOPF, it ends a nasty chapter that dragged for over 10 months, which involved accusations and counter-accusations, of which some bordered on fraud.

The fallout between BPOPF and CMB had dominated the news, not only for the sheer amount of the monies involved, but also for the subversive behaviour that unravelled when the two former business partners went for a bare knuckled fight that ended up at the High Court of Appeal.

BPOPF and CMB crossed paths in 2014 following the pension fund’s P800 million private equity programme targeted towards unlisted local investment opportunities. It was then that CMB won the bid to partner with BPOPF, which resulted in Botswana Opportunities Partnership (BOP), an investment company in which CMB was the general partner while BPOPF was the limited partner and sole investor. From the P800 million private equity purse, only P500 million was released as the first tranche of the programme. Through BOP, CMB as the fund manager drew down P450 million to be used on investments, leaving only P50 million in the books of BPOPF.

The business relationship started showing signs of cracking in 2017 when BPOPF became suspicious of the fund manager after uncovering breaches which contravened the partnership agreement. Chiefly amongst the concerns were that CMB invested in a listed company contrary to its mandate to invest in privately held companies. Startled by these breaches, BPOPF demanded independent valuation of the assets held by BOP which had gobbled the P450 million.

Instead, the defiant CMB demanded a drawdown of P77 million to be used in other investments. However, BPOPF balked at that request, and what followed next was a furious cat and mouse game which involved hundreds of millions at stake. CMB not only poured water on the independent valuation of the BOP assets, but also threatened to kick out BPOPF as the limited partner in BOP, citing the partnership agreement which allowed the general partner to terminate the limited partner for failure to meet its obligations.

BPOPF called the bluff and took the fight to CMB, terminating the fund manager’s position in BOP as the general partner in December 2017. Bizarrely, CMB had claimed to have dissolved the BOP in October 2017, removing BPOPF as a partner, and assets transferred to a new partnership with undisclosed partners. In a brazen act that baffled many in the financial services industry, CMB said it disposed BPOPF stake for P50 million, despite the pension fund having pumped P450 million in the BOP.

In a statement released this week, BPOPF spoke candidly for the first time that it fired CMB as general partner and fund manager of BOP following allegations of misappropriation of funds, overcharging of fees, negligence and fraud in the fund.

The statement further reveals that earlier this month, BPOPF was exonerated during the arbitration. The arbitration came after CMB was placed under statutory management by the High Court of Appeal on the request of Non-Bank Financial Institutions Regulatory Authority (NBFIRA) which as the regulator had received complaints about CMB. Corned and bruised, CMB went to the arbitration as a weakling with the odds stacked against it.

“CMB and BPOPF earlier this month settled the arbitration on the basis that BPOPF had never breached the partnership agreement relating to BOP, that CMB had been properly removed by BPOPF in December in 2017, and at all times , and remains, the only limited partner in the BOP. The arbitration between CMB and BPOPF has therefore been concluded,” read part of the statement.

In a damning indictment against CMB, the settlement agreement recognises that CMB’s attempt to dispose of BPOPF’s interest in the fund was a sham and is invalid. “The fact of the matter is that BPOPF never breached the agreement. The purported removal of BPOPF was a sham,” the statement revealed.

With BPOPF having scored another victory over CMB, the attention has shifted to how much BPOPF will recover from the P450 million that has been invested through BOP.  In a related matter, CMB is facing potential liquidation.