When Alexander Forbes Botswana Managing Director, Paul Masie decides the Botswana Public Officers Pension Fund (BPOPF) Trustees meeting diary like he is the guy running the fund, he has reason to believe.
For other asset managers, competing with Alexander Forbes and wishing to meet BPOPF trustees, Masie is the man to see. He is also an arbiter of tenders and helps to decide who gets hired or fired at the BPOPF secretariat.
Masie’s immense power baffled even Jacques Malan Consultants and Actuaries, who were commissioned to investigate the goings on at the P30 billion BPOPF. He serves as gatekeeper for BPOPF trustees, deciding the trustees meeting diary with competing asset managers. Jacques Malan Consultants and Actuaries observed in their report that the service provided by Alexander Forbes to the fund “needs to be considered. The service agreement that exists between BPOPF and AFB can be described as a standard service agreement and contains the provisions expected of an administrator. However, the services actually provided go much further than this and grant Alexander Forbes Botswana extreme powers in running the fund.”
Alexander Forbes Botswana attends behind closed door presentations when their competitors make presentations to the BPOPF and have been involved in the tendering process “when they themselves were one of the parties tendering.”
Alexander Forbes has also “participated in the appointment of staff in the secretariat, including the Principal Officer.”
Jacques Malan Consultants and Actuaries bemoaned that “this gives Mr. Masie a power that breaks down all the rules of good governance.” They further observed that “this relationship between the fund and Alexander Forbes Botswana is very unhealthy and defeats all the norms of good governance. When a service provider and his client are so close, it can lead to poor service and there could also be collaboration in conducting matters of an illegal nature. Jacques Malan Consultants and Actuaries are not stating that such illegal matter took place; all it is saying is that should they take place, it would be very difficult to uncover.”
The situation is not helped by the fact that BPOPF goes to unusual lengths to avoid transparency. In February last year, BPOPF blocked an investigation by Novare Actuaries and Consultants, commissioned by the Permanent Secretary to the President, Eric Molale. They have spent the last few months trying to frustrate another investigation by Jacques Malan Consultants and Actuaries commissioned by the Registrar of Pension and Provident Funds. The consultants reported that ‘at meetings the BPOPF secretariat was extremely rude and disrespectful…. The fund has been very uncooperative in dealing with the investigating team and have delayed provision of information and refused to allow investigators to meet with certain service providers.’
“The information that has been passed to Jacques Malan Consultants and Actuaries has been scrutinized by the Fund. As there are often gaps in this information and as Jacques Malan Consultants and Actuaries has not seen the original documents, it is possible that sections have been removed. What is certain is that vital information passed on to the fund by the service providers has been kept by the fund and have refused to pass it to Jacques Malan Consultants and Actuaries.”
Alexander Forbes Botswana was also ordered not to release certain crucial information to the actuarial investigators.
“By seemingly concealing this information, it leaves an impression that something is not right and is being hidden,” concluded Jacques Malan Consultants and Actuaries.
Curiously, Fund Administrators, Alexander Forbes, are also believed to be milking the fund at the expense of pensioners. “The one obvious problem is that the fees being charged for deferred members appear high. For an active member, the administrators receive and record contributions on a monthly basis. For deferred members, there is no monthly activity on their account so the amount of work is greatly reduced. However, the fees charged are about 86% of the active members’ fees and this appears excessive. The Trustees should negotiate with Alexander Forbes Botswana to reduce these fees and amend their service agreement.”
On retirement, a member may either purchase his pension from the fund or an insurance company. The advice to the member is given by Alexander Forbes Botswana who earn a commission only if the pension is purchased from an insurance company. “Clearly this is a conflict of interest… On the death of a member, often money is paid into a trust. As the only trust available is run by Alexander Forbes Botswana, there is again a conflict of interest.….. As stated earlier, there appears to be a very unhealthy relationship between the fund and Alexander Forbes Botswana. Several service providers to the BPOPF have complained that they have been unable to talk directly to the trustees, but have been forced to channel all communications via Mr. Masie of Alexander Forbes Botswana. This has led to annoyance from service providers plus it has meant a breakdown in both speed and understanding in making decisions.”
One of the unfortunate incidents was the abortive Mascom deal which is believed to have cost pensioners close to P200 million.
“The Mascom/Deci episode was a debacle. BPOPF owned 67% of Deci which, in turn, owned 60% of Mascom. Therefore, the BPOPF owned 40% of Mascom. The other 33% of Deci was owned directly by Bifm, one of BPOPF’s other asset managers. As Bifm was selling its portion of Deci, African Alliance wished to purchase these shares and then go on to sell the whole parcel as a controlling interest. It appears that a controlling interest is worth a premium of some 10% to 15% which in this case was worth some P100 million to P180 million, depending on the value placed on Mascom. African Alliance appointed Goldman Sachs to assist in finding a suitable buyer which was in line with their service agreement. Many things went wrong with this deal:
African Alliance were not permitted to talk to the trustees but were forced to deal via Mr. Masie of Alexander Forbes. As a result, urgent decisions could not be made in time. As the trustees never spoke to African Alliance, it would appear that they did not understand what African Alliance was trying to achieve. Bifm did not sell their shares and there was a dispute which led to the Fund being requested to go to court. Goldman Sachs’ appointment has been terminated, but as they have a contract with the Fund until mid 2008, should the Deci shares be sold during the period, they will be entitled to their fee. The net result is that the Fund still owns the shares and lost an opportunity to make a large profit.
In a curious twist, while the Mascom deal was under discussion, a consortium of citizens wished to buy the shares. According to the report by Jacques Malan Consultants and Actuaries, “The evidence given by African Alliance strongly suggests that the leader of the consortium was a Mr. Gaobakwe who is a trustee of BPOPF. Mr. Gaobakwe denied this at a Trustee meeting, but apparently admitted this at a later stage.”
Jacques Malan Consultants and Actuaries could not obtain full proof and have suggested that the Registrar would have to get the information directly from the Fund. “If it is true, then the lack of good governance and the conflict of interest are severe and, in fact, Mr. Gaobakwe lied to the Trustees. If true, Mr. Gaobakwe should cease to be a trustee of the fund (READ NEXT WEEK’S INDEPTH)
The incestuous relationship between Alexander Forbes Botswana and BPOPF further raises questions on whether the Fund can be trusted to protect Botswana pensioners’ interests in the debacle engulfing Alexander Forbes South Africa. Echoing the concern, the investigator’s report states that “the fact that Alexander Forbes South Africa owns 67% of Alexander Forbes Botswana does not in itself cause questionable ethics.
However, Alexander Forbes South Africa has been found to have unlawfully taken a large amount of money from its clients by a process of bulking.”
The bulking process worked on the following basis. Alexander Forbes had well over 100 clients. If each went to the bank individually, then the interest rate offered by the bank on its cash management system would have been say 5% per annum. Alexander Forbes went to the bank and bulked all their clients and as a result were able to obtain a rate of say 8%. Alexander Forbes then gave say 1% of the difference to the client and kept the remaining 2% for itself.
The argument was that by bulking, the clients were better off, but in South Africa, the law of agency states that you cannot make a profit from clients’ assets without full disclosure and obtaining permission.
Many fund administrators in South Africa have been found equally guilty and, amazingly, the banks seem to have escaped scott free even though they agreed to take money from one client and give it to another. So bulking in itself is a good process as it does benefit the client. The problem with Alexander Forbes South Africa was the non-disclosure.
The question then arises as to whether the same problem existed in Botswana. There is a letter from BPOPF bankers stating that it did not take place and Alexander Forbes have confirmed it verbally. This could well be true as the BPOPF is very large as compared to the rest of the industry in Botswana.
However, on 30th October 2007, a report appeared in the South African newspapers in which Mr. Geoffrey Nzau, Chief Executive Officer of Alexander Forbes Afrinet, is quoted. The report on Botswana is not very clear but it could be interpreted as saying there was bulking in Botswana.
A further issue is that, probably due to the incestuous relationship, it has not been shown whether the secretariat or the administrators made efforts to obtain the best cash management rate from the bank as obviously the investigators were unable to ask the question because the administrators were banned from discussing the issue with them.
The situation is further complicated by the fact that Alexander Forbes Botswana is caught up in a web of conflict of interests.
