Thursday, October 28, 2021

Peter van Riet-lowe breaks silence on Fleming debacle

Not quite two years ago Fleming Asset Management made headlines with accusations of “improper” foreign exchange trades with a local bank. In addition, the company was accused of favouring foreign subcontractors on the Hilton Hotel project in the Gaborone CBD. That project had been conceived by Flemings in conjunction with a wholly owned citizen group. The ensuing fracas saw their mandates with the BPOPF terminated, entirely improperly in the view of many including some then Trustees of the fund, on the basis of these two unsubstantiated allegations.

However, the story against Flemings had started several years earlier around 2010 when Flemings acquired a plot in the Fairgrounds from Fairground Holdings, a BDC subsidiary, for the BPOPF. The plot was to be developed into a high quality office park for the fund, part of which was to be occupied by their Secretariat. An agreement to do so was subsequently concluded between the BPOPF and Time Projects. During this same period an aspirant asset consultant to the BPOPF, Novare, lost its first bid to unseat Alexander Forbes. Flemings was then accused by one of Novare’s representatives of having sold the plot for a profit to the BPOPF. That was not true. It was subsequently shown that the property had been purchased in the name of the fund, registered accordingly and paid for directly by the fund. This was followed by a further attack on a minor shareholder in Flemings, Alexander Kelly, who was referred to as “man of many hats” in the press, insinuating some sort of conspiracy between Time Projects and Flemings. This observation also came from a Novare “representative”. Apparently Novare managed property assets in Nigeria and elsewhere and perhaps had an axe to grind. The motive for this assault, however, remains unclear. Ironically the project ended in a dispute between the BPOPF and Time. Fleming, under some duress, was obliged to indemnify the BPOPF against any such claims or risk losing the mandate. Flemings complied at its own risk in order to maintain good relations, hardly the upside benefit of an alleged plot.

Some years later, Novare succeeded in becoming asset consultant to the BPOPF, unseating Alexander Forbes unceremoniously. It did this despite having no proper office or staff resident in Botswana, whereas Alexander Forbes had significant local staff and local ownership, one of the “minor” evaluation criteria. During the tender evaluation by the BPOPF board Alexander Forbes scored higher than Novare on overall assessment but was strangely still terminated. The then BPOPF CEO was summarily relieved of his position on quite spurious grounds and suffered horrendous and undeserved privations as a consequence. He was made to fight for his contractual dues but mercifully was eventually reasonably compensated ka modimo hela. It did not end there.

During the transition to the new asset consultant in 2014, the incumbent managers were visited by a senior consultant from Novare on a so called due diligence visit. In the case of Flemings this lasted one hour and the same more or less for BIFM. A “draft” report was then circulated amongst the Government Ministries on Novare stationery. This report stated that BIFM and Flemings were very expensive service providers and worse had double invoiced the BPOPF on the foreign assets managed by them and that the BPOPF should seek restitution and compensation from the two managers. It further recommended that they be replaced by Afena Capital (now Kgori Capital) and Stanlib. There was no criticism levied against the South African asset managers. Why were the two Batswana companies singled out? Why were blatant lies told about them? Why was the report liberally distributed around the Ministries yet the consultant was not required to show evidence of its allegations? Because it could not, as the allegations against BIFM and Flemings were false! Prior and subsequent audits clearly showed that Flemings was in fact the second cheapest of all the managers. The report further stated that the Flemings inter alia had not created a suitably diversified portfolio for the fund. That was also false. All asset classes including alternative assets such as hedge funds, private equity and property were all present in appropriate risk-controlled proportions in the aggregate portfolio, managed for the BPOPF by Flemings. Flemings was also at that stage the only manager to also have developed and invested directly in Botswana property for the BPOPF. That fact was conveniently overlooked in the Novare report. Novare was challenged on their report and their SA based CEO, Johan Henn, invited to a discussion on the same report at the Secretariat.  They averred that that the said report was not official as it was unsigned. Henn failed to turn up for the discussion as there were “no seats” on the plane from Cape Town. The report had clearly been circulated to undermine the credibility of the two local managers and sow seeds of doubt. There was no other reason. The matter was not taken further.

The December 2014 Alexander Forbes manager survey was then issued shortly after the end of the same year. Flemings scored top in all twelve categories for small medium and large funds and on quarterly, one year, three year and five year returns. That had never been achieved before by any manager and has not been achieved since.  In February of 2015 Flemings went on a manager visit with Novare to offshore managers. Novare then announced at the same meetings without any prior notice that these foreign accounts were being terminated. The BPOPF’s General Manager Investments appeared to have had no say in this. That was an odd state of affairs to say the least. The performance statistics recently published by Forbes were completely ignored in this process. The action followed on the “unofficial” report of the consultant. Their latent intention was to unseat the local asset management industry not to develop and enhance it as was claimed.

These funds were then all liquidated and converted to cash at great expense to the BPOPF.  These unnecessary and very expensive transactions cost the fund dearly and could have been completely avoided through scrip transfers between custodians. This option was suggested to the fund but the advice was ignored. However, the funds largely were earmarked for a very questionable trust account with BNP Paribas in the Channel Islands. Such structures are suitable for South African investors wishing to mitigate tax but had no suitable purpose for a tax-exempt pension fund in an exchange control free jurisdiction in Botswana. Much of the liquidity also remained uninvested in cash in local foreign exchange accounts earning nothing for extended periods of time. What the motivation was for such a decision still remains unclear, other than quarterly board meetings abroad. The risks of alienation of property and loss of control of assets by the owners in a trust to the Trustees of the trust was never properly articulated. It turned out that the consultant intended to manage the assets rather than advise. Fortuitously NBFIRA intervened to protect the interests of the members of the fund and the fund was forced to remove the assets from the Trust as such trust was not compliant with Botswana regulations. This required legal action by NBFIRA, as their instruction was challenged by the BPOPF. The legal costs incurred by the BPOPF in asserting their ill-conceived and irregular actions in respect of the Trust and offshore assets of the fund, against the Regulator remain undisclosed. These costs amount to a further permanent loss suffered by the members resulting from capricious self-serving decisions. However, NBFIRA should be applauded for this action to bring the assets back under its purview which had been compromised by the creation of the Trust.

The Fleming Africa Fund, the first and only local product of its type and of Botswana origin open to foreign investors also had to be wound up.  This casualty followed the withdrawal of foreign assets from the BIFM and Flemings mandates at the behest of Novare. This disinvestment was effected despite the fact that it was a top quartile performer within its peer group which included UK based and SA based African equity funds. A local first strangled in its ascendancy on the advice of a foreign consultant with questionable credentials, naively followed by local Trustees!! Who benefited?

A further casualty of the removal of foreign assets was an initiative allowing other citizen employees to buy into Flemings at a suitably discounted rate. Flemings was already 75% citizen owned and had been since 2002, long before it became “fashionable” to qualify for local tenders. It was already widely held but the founder had declared the need to broaden ownership to include more staff and employees participating in the activities of the company. The virtues of such are quite apparent. However, the arbitrary decisions of the BPOPF, not founded on performance concerns or any real issues, discouraged the staff and the bid was abandoned for obvious reasons by them.

In December 2015 Flemings was still top in eight out of the twelve categories in the Alexander Forbes manager survey, despite significant disruptions in the BPOPF mandate. In the same year the agreement to build the Hilton Hotel was being concluded. The start was delayed because of additional regulatory burdens having been placed on the project at the last moment, but resolved in early 2016.

By June of 2016 Flemings and its CEO had been accused of improper foreign exchange transactions by the local bank as well as favouring foreign subcontractors at the expense of legitimate Batswana subcontractors on the Hilton Hotel project. Both of these allegations were maliciously conveyed to the management and Board of the BPOPF and were both false. Both “felonies” were used at a meeting of Trustees held at the end of June 2016 in Magaliesburg, South Africa as a rationale to terminate the BPOPF’s [PvR1]  remaining mandates with Flemings.

Firstly Flemings was accused of placing billions of Pula single bets in forward exchange contracts by the same bank’s CEO who presumed and stated that client funds had been put at risk to do so. Attempts made to correct these statements by other staff members at the bank were ignored. Such misinformation was conveyed to the BPOPF and the Chairman of the Flemings Board. Newspaper articles were also prepared in advance to tell that side of the story. The transactions were described as improper by the source of the “news” despite the fact that exactly the same type of trading had gone on for many years between the two parties without any prior queries from the bank’s executive. A senior manager was accused of giving Flemings et al preferential rates, thus incurring losses for the bank and profits for them. An internal enquiry was held at the bank and it was found that that was not in fact the case and had never been the case. That had been known all along and allegations of improper foreign exchange trading were merely malicious and false. The allegations of placing client funds at risk in order to trade were also proven false. No client put at risk to trade, not a penny lost. This was proved by an unnecessary forensic audit undertaken at great expense to Flemings. However, connivance amongst the malefactors of Flemings together with fake news did the desired damage.

The matter of the unsolicited gift paid by a related company owned by the then CEO of Flemings to a third party company should not have been seen as a surprise. An agreement to share some profits had in fact been reached with executives of the bank in November 2014, the formalisation of which was delayed due to IT glitches relating to automated trading which persisted through to early 2017. What was paid over was an approximation of what was agreed to before and based on then profits at the end of 2015. The executive had been expecting something. Whatever happened thereafter was internal to them and of no business to the co-trader, settlor of trades and payer of the profit share. Flemings specifically did not pay out anything to anyone connected in anyway. Nothing was paid out as a so called consideration for “special” treatment offered to Flemings or related parties. An estimated profit share as had been discussed and agreed to and was paid by a related party after the event. Nothing more nor anything illegal was done, nor was there any inducement of either party. No client  money was taken nor absconded with overseas to some tax haven as had been suggested. In short, all the assertions made by the said person(s) were false and can only be described as malicious and reckless pursuant to yet another unidentified agenda, except to damage Flemings.

Secondly there was the alleged “favouring” of South African subcontractors at the Hilton Hotel project. This accusation was levelled at Flemings as well. It had apparently been “brought to the attention” of the BPOPF Investment Committee by a group of concerned citizen contractors who alleged exclusion and possible racial bias in selection. It was also alleged that this prejudice against citizens arose as  Flemings was a “South African” company despite its documented 75% citizen ownership. An inquiry was held. Novare, the consultant, a 100% South African company represented by their CEO, was present. Ironically!! It was pointed out that the first subcontractor for civils work on the project was  100% citizen owned. Those owners were dismissed akin to “Batswana wa Pampiri”. It was not, however, noted that one of the so called rejected Motswana subcontractors was in fact owned by the spouse of a senior functionary of the fund. Their tender being rejected was based on a price approximately P 1million higher than the preferred bid, and not negotiable. In fact all efforts were made to ensure maximum citizen inclusion as was stated from the getgo at the ground breaking. However, all bids still had to be competitive, properly financed and resourced to ensure completion on time and on budget, given that it was an investment for a third party that had to meet many criteria.  This last mandate was not initially terminated, but renegotiated with Flemings. Shortly after signing, the new mandate was unilaterally terminated by the BPOPF and transferred to a third party. When queried, Flemings was advised that it had been never the intention of the fund to continue with them, they merely needed a stop gap. Good faith seemed to have disappeared. The team was changed against the advice of the project’s minority partner, who was well seasoned in large projects. The project is now months behind schedule and well over budget. It was not handed over like that.

All this financial loss also resulting from false accusations made about Flemings favouring foreign subcontractors? One might ask who pays for that?  The members have to of course.

Finally, at Magaliesburg, it was claimed that the management had a written admission of Fleming’s having used clients’ capital to trade. However, there was no such written admission. It did not exist because it was not true. That falsity together with the allegation of deliberate exclusion of citizen subcontractors were used as a pretext for the summary dismissal of Flemings. Several Trustees were not convinced but were overridden. A newspaper had already been pre-advised of the “decision” before it was taken and was able to print a weekend paper in time to discredit Flemings. That form of fake news became the  hallmark or modus operandi in the attempts to capture the fund, and remains so.  Flemings was not subsequently allowed to make proper representation to the BPOPF board. The funds unsurprisingly were largely given to a well known then 50% young citizen owned company. It  hardly had the  necessary resources or performance history so fundamental to manager selection.

So after more than two decades of excellent performance, clean company audits with full disclosure to BURS and NBFIRA with no significant queries ever, no loss of client money, clean audit reports in respect of all clients, always putting clients’ interests first, three out of the four top posts held by Batswana, 75% citizen ownership, more CFA and other pertinent graduates through Flemings than all the other fund managers put together,  came the arbitrary execution of the only homeboy. Bravo. Somebody did not like some of the high profile shareholders? What of the small citizen shareholders, the staff and their families? Neither they nor Flemings had actually done wrong. Was it all a conspiracy, a complot of inebriates?  Are we delusional? Unlikely, but who knows or cares? Viva botho viva

Fast forward to today. Where is the vaunted “indigenous” asset manager Kgori (Afena) and its godfather, Novare? How did the “favoured” Stanlib lose the NPF mandate to Kgori? How much BPOPF money is already lost, following advice of an “independent legitimately appointed” consultant, personal agendas and self-serving decisions of influencers using other peoples’ money? How much will the legal fees from more reckless litigation amount to,  using other peoples’ money? Who will fix the likely funding crisis in a few short years? Tsogang Banna tsogang!!

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