angelo2711’s posterous

Educational policies are attempting to make a comeback… but at what cost?

Earlier this week a media statement came across my electronic desktop and stopped me in my tracks. I remember when this product was launched, and it didn’t make sense to me then. Be that as it may, there are now 6929 unit holders.

“…The Fundisa Fund is a low-risk fixed interest income unit trust fund of funds. This means the fund only invests in fixed interest income unit trust funds, which in turn invest in bonds, fixed deposits and other interest earning securities…”

I understood the need for a product, but I couldn’t understand why an advisor should charge a fee. I still don’t understand why asset manager should charge a fee. Well, that’s not true. I did understand the business imperative, just not the moral imperative. What I still don’t understand is why there has to be an active management fee attached to the unit trust and why a money market fund has been selected as the vehicle.

A spokesperson at the grouping marketing the product explained the fees and the unit trust option it to me. So here goes:

The annual fee of 1.25% + VAT goes to the management companies to cover all ongoing costs such as marketing, distribution, administration, fees paid to the host company for hosting the fund and for fund management.

So out with the calculator. When you get your regular printout of the performance or lack of performance of this fund, remember to deduct 1.25% + VAT from the returns. But before you get out of the starting blocks remember that if you have used an advisor who isn’t tied to one of the three institutions, you are going to be paying a portion of your capital to them for the privilege of their advise.

So once you have got out of that hurdle your first year’s returns have been depleted by anything up to 4.25%.

Onto the second point – why a fixed interest income unit trust funds, which in turn invest in bonds, fixed deposits and other interest earning securities.

The aim was therefore to avoid the potential of capital losses while still providing a good return. The fixed interest income category was therefore selected, which, when back testing was done, consistently produced better nominal returns after fees than a bank account.

OK. I get the comparison between a unit trust and a bank account in terms of interest earned. But how can anyone compare a unit trust to bank account – they serve two completely different purposes, even if the banks are notoriously good at extracting their pound of flesh when it comes to banking charges.

Why wasn’t a passively managed fund selected? Why wasn’t an index tracker fund selected? Why was a fund of funds selected?  So many questions, so many fees and so little clarity. If you were an advisor, would you recommend this product to your family and friends in good faith?  

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While people talk about the smoke and mirrors that make up a lot of what is Dubai, there are a couple of issues that we need to be reminded about.

  Abu Dhabi only began its current expansion once the ‘new’ Sheik came into power. His predecessor was determined to maintain a lot of the character of the country, something that their neighbour – Dubai – was quick to relinquish. This, despite the fact that Dubai has no natural resources of any particular value and Abu Dhabi was well endowered.

  One commentator put it into context, suggesting that the current crisis is a continuation of the sub- prime crisis, but really restricted to the Emirates of Dubai, Sharjah and Fujeriah, and not Abu Dhabi. These three Emirates have no oil and have funded all their development on debt, based on extravagant property developments.

  Consider that Dubai has two international airports, while Sharjah and Fujeriah also have recently opened up their international airports- all within an area of 70 km of each other. And let’s not forget that Abu Dhabi who has a huge international airport a short distance from Dubai’s Jebel Ali airport.

On the other hand the other gulf states, Qatar, Kuwait, Abu Dhabi, have real money. Bahrain has no oil, but a solid infrastructure and has not embarked upon any really extravagant projects.

So while the jury is still out on the potential international impact of the debt stand still of Dubai World, the right noises are being made by regional rulers. The local impact could well see some activity on the ownership structure of local landmark – the V&A Waterfront, all depending on whether there is appetite for property investments.

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Here are three little “niggley bits” that made me stop and wonder about the wild side of South African business.

  One:
So – the insider trading directorate at the FSB issued their last ‘hit list’ for the year and it appears that the FSB are no closer to finalizing the matters against certain ex directors at Sentula Mining for alleged insider trading.

  Looking further down the list I noticed that Huge group was also listed for alleged market manipulation matters. I’m confused. I thought that the JSE had fined two directors some R5m for certain activities in trading derivatives. When I spoke to the FSB about Huge, no mention was made of any ongoing investigation. In fact the FSB indicated that the JSE had jurisdiction in that case.

  It turns out that this case involves a separate investigation and trading in the shares. The company is not being investigated. This is an interesting clarification from the FSB as in the JSE case the company was sanctioned and the directors were fined.

  The FSB generally doesn’t reveal details on who is being investigated and the details of the investigation. So we wait.

  Two:
Speaking of waiting. I wonder why insurers do their best to not pay out on a claim? Is there any particular reason that insurers believe that it is fair business practice to repudiate a claim almost automatically on first submission? And then a family member reminded me that insurance is a rules-based business. If the claim is outside the rules they will repudiate. More detail on a looming battle with PPS to follow…

  Three:
Still speaking about waiting, I mean weighting: it appears that one rather large asset manager has closed its funds to investors, and is directing potential clients to invest in their unit trust products. Shall I be the cynical one and suggest that this is a business move because the fees that unit trusts traditionally charge are higher than direct investments into funds.

  Hiding behind your corporate walls hoping consumers wont understand what you are doing is an outdated business model…

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Old Mutual Zimbabwe should ‘PASSOP’

Last week I saw a call for people to sign a petition to give Old Mutual Zimbabwe gears for investing in Zimpapers. I immediately went to the NGO site and looked for the petition and also to familiarize myself with the facts.

Time for a bit of research. It appears that Old Mutual Zimbabwe holds a 19% stake in Zimpapers, simply because its the only significant stock in the print and media space.

It’s a portfolio investment and not a shareholder investment though and according to Old Mutual Zimbabwe Group CEO, Luke Ngwerume, they do not influence or involve themselves in the operational policy or practice of Zimpapers or any of its subsidiaries.

Defending his company’s position, Ngwerume says the circumstances in Zimbabwe are very different to other countries. “We are required to invest Zimbabwean policyholder money in Zimbabwean assets and therefore our options are extremely limited.”

Ngwerume says that within those constraints, their objective is to generate the best returns that they can for the benefit of their policyholders.  According to Ngwerume the Zimbabwe Stock Exchange (ZSE) Index shows a year to date return of 408%, while Zimpapers Group’s year to date return is an astounding 1,770%. “This has provided one of the highest returns recorded on the ZSE and one of the highest returns for our Zimbabwean policyholders,” he says.

Old Mutual Zimbabwe manages the savings of a little more than a million Zimbabweans. Despite this Ngwerume also confirmed that the Zimbabwe operation has not made any contribution to Old Mutual Group profits for some time. “However, we have remained operational in order to look after our customers’ investments, and disinvestment from major assets would ultimately have adverse consequences for them."

While I accept that it’s a portfolio investment and not an institutional investment, isn’t it time for old Mutual Zimbabwe to become a shareholder activist as is becoming the norm in other countries. In SA shareholder activism has been slow to take off, but it is happening.

It appears that returns are more important than civil liberties. Although it is a trade-off between returns and morals. I then asked myself how I would treat the petition if I was an Old Mutual Zimbabwe policyholder, living off the returns generated? Food on the table versus civil liberties…

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While it’s a huge fine, still some questions about where it will go…

So two directors at the JSE-listed Huge Group – James Herbst, the CEO and the executive chairman Anton Potgieter have been slapped with a R5m fine: “…as a result of the breaches of their fiduciary duties as directors of Huge and their actions that had resulted in breaches by Huge of the Listings Requirements…”

I spoke extensively with the executives soon after the news broke earlier this year and they were adamant that they hadn’t done anything wrong. The technical details of the trade are complex and not being an registered JSE advisor, I wont go into the detail.

What I can say is that the JSE were tight-lipped about the trade and its own investigation and findings. I made several attempts to engage the JSE at the time, to no avail. So on Thursday last week the news broke.

A spokesperson at the Financial Services Board (FSB) suggests that the company had contravened the listings requirements of the JSE, something that the FSB doesn’t have jurisdiction over. In terms of the Security Services Act, the JSE is responsible for the listing requirements and as such, may apply a sanction.

Huge CEO James Herbst says that he will keep us updated should he and Anton (executive chairman Anton Potgieter) decide to make an announcement in their personal capacities.

Meanwhile Huge Telecoms says that it is pleased to announce that its dispute with the JSE has ended after the JSE announced it had imposed a public censure on the company, relating to the purchase of derivatives contracts in October 2008. It appears that the group is also pleased that no fine was imposed on the company. The company says that the board of directors will fully support Potgieter and Herbst should they decide to appeal against the penalties.

And then after months of silence, the JSE opened up. From the statement we received it appears that the JSE applied their collective minds to the matter, and went through all the correct processes to reach their decision.

So whether the directors decide to appeal the fine or not is really a moot point. What has yet to play itself out behind the closed doors of the corporate environment is whether the nature of the relationship between the two executive directors and the rest of the board and management has changed.

The bottom line is that the company’s two most senior executive directors have been found wanting in terms of their behaviour. And what about the relationship between the CEO and his management team? How are clients reacting to the news of the fine?

What is very clear is that investors and traders aren’t completely convinced, either way. The share price has been hammered, trading at a 12 Month Low of 28c on 28 Oct ‘09, coming off a high a little over 12 months ago of 300c on 11 Nov ’08. In the last two days of last week alone the share price has moved up 18%, although on very few trades.

Would you invest in this company? Would you use this company’s services? More and more questions than answers…

Speaking about questions and answers, and transparency, if the fine is paid, where does it go? Well, to the JSE. There is the guarantee fund. This is an off-balance sheet fund and thus not reported on in the listed entity’s results. It appears that the JSE guarantee fund is a separate structure and is managed as a trust fund.

The JSE Guarantee Fund on the other hand would protect the investor (secondary market) in the event that a broker defaulted. It appears that there are three investor protection funds on the balance sheet. According to the JSE the penalty is received in terms of their rules and can go either to the fund or to the JSE, and possibly to the surveillance department. A decision has not been taken on this, yet, says Freda Evans, JSE chief financial officer.

We are still trying to determine which asset manager manages the fund and where are the assets invested.

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We recently broke the story of our now infamous ‘Gert’, the SMS short code marketing platform guy and the news that we managed to stop him hooking any unsuspecting investors.

  While he was intercepted in time on one mobile network operators’ platform, the intrepid ‘Gert’ tried his luck on another platform, a week later. Again thanks to the quick response of a reader to the spam emails, ‘Gert’ may have been stopped in his tracks.

  The other good news is that the third mobile phone operator doesn’t offer the bulk email service that our entrepreneur is looking for. So the good guys win this round, but it appears that the ‘bad’ guys will keep on trying to separate investors from their capital. Be careful – it’s a jungle out there.

  Speaking of separating capital from investors, it appears that Global Ovation, the platform that the alleged fraudster and bad guy JA Brown was milking dry, might be able to release a portion of the capital of its long-suffering investors in the not-to-distant future. Letters to investors indicate that there may be light at the end of this particular tunnel, and not a moment to soon for many struggling to make ends meet in a tough economic environment.

  In other news: The SACCI Business Confidence Index (BCI) fell by 3.3 points to 82.2 in October 2009, diminishing the gain of 2.5 points in September. Although still higher than the depressed level of 78.9 measured in March 2009, the return to a level of four months ago indicates that maintaining higher business confidence levels will need continuous efforts to stimulate a favourable business environment.

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If it seems to good to be true - then it isn't true. So it turns out that I may have been onto something. Last week we mentioned that there might be a pyramid scheme or a scam about to hit our beautiful streets. This in the same week that an international arrest warrant had been issued against alleged Ponzi scheme operator Mr Tannenbaum, camping out in Australia, and ‘his’ lawyer, who could have a slightly unhappy festive season, either behind bars or on bail.

Well, it turns out that our mate 'Gert' of SMS short code platform fame might well have been trying to pull the wool over some unsuspecting investors' eyes.

According to an investigator at the cell phone network operator, he had applied for a service just five days before the spam email bombarded my in-box. He had managed to send out 42 000 emails before he was shut down. The operator became suspicious when the new user attempted to send out such a large number of emails and shut the account down. An investigation is underway to identify our mate Gert.  

According to the cell phone network operator It does appear that no responses were sent to to Gert and no one took the bait. As the investigator put it, this shut down saved a number of recipients from joining the user and in so doing suffering huge financial losses.

Lessons learnt:
1. If someone tries to entice you to part with your capital do a proper due diligence
2. Contact any number of regulators to report your suspicions
3. Look for a company registration number, or FSP number
4. Walk away if the returns seem unrealistic and apply your common sense

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With apologies to ‘the vanishing pumpkin’ and kids’ book author Tony Johnston.

  The Friday blog on a cell phone short code platform looking for investors has attracted a fair amount of attention. It appears to be an alleged pyramid scheme built around a SMS short code platform.

  And then last night, while I was reading a book to my youngest daughter, it dawned on me that the almost all the characters in the book bear some similarity to the characters in the short code platform fairy tale.

  The story line is straight forward – it’s about a 700-year old woman and the 800-year old man (investors) and their search for a missing pumpkin (the R250k capital investment) on 31 October (Halloween).

  They meet Gert along the way in various disguises. Firstly, he is the ghoul, then a rapscallion and finally a varmint. The 800-year old man ‘does a trick’ on each of the characters in an attempt to find the missing pumpkin, but to no avail. Finally the group come across a 900-year old wizard (possibly a local regulator, either the FAIS Ombud or the FSB), who has the pumpkin, but it has already been converted into a candle-lit jack ‘o lantern.

  But where is the capital (the contents of the pumpkin), which the old couple wanted to convert into a pumpkin? Well, the wizard has carved it out and no doubt the curators have taken their share of the spoils for the work that they did, in carving out the innards.  Of course the old man and women are more than happy to share in some of the pumpkin, not realising that the entire pumpkin belonged to them in the first place.

  Back to the original short code platform fairy tale. What is strange is that while I copied the FSB on the email I sent back to the original sender, I have yet to receive an acknowledgment of receipt, let alone any attempt at action. In the mean time our friend Gert aka ghoul, rapscallion or varmint, could be making hay, fleecing gullible investors of any amount of hard-earned capital. What I did get though, is the start of an investigation by the cell phone network operator, who does take these types of issues rather more seriously, and has the staff to do so.

  What irritated me more though was that someone has sold my details to an unscrupulous buyer. There was no due diligence done by the seller and if there was, what would they have found? But I do wonder whether any of my human rights, and specifically my right to privacy, have been violated, and whether I can sue. But who would I sue, the alleged pyramid scheme operator – who has probably disappeared into the deep jungle, or the seller of my data?  Who would probably deny having sold my information, in the first place?

   Happy Halloween to those couples who don’t believe in fairy tales and to the ghouls, rapscallions and varmints out there, why not apply your minds to do some good and build wealth in your community and not attempt to destroy people’s lives.

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If it looks like a fish, smells like a fish and wriggles like a fish…Then it probably is a scam. Does anything in this email ring alarm bells? The headline is catchy – Make R1m from an investment of R250k.

  “An exciting business opportunity is available that will earn you a great income in one of the highest income generating industries namely telecommunications. The platform is currently one of the fastest growing business marketing platforms namely SMS short codes. You will have the opportunity to become an SMS short code dealer and appoint your own resellers to target businesses that advertise their services to their clients on our SMS short code platform…”

  That’s for starters. As I read on, my blood began to boil, and then I stopped and decided to unpack the offer. Doing my due diligence and with my limited understanding of the telecoms sector.

  Lets start at the top:
Statement 1: Make R1million from an investment of R250k. This is great news for all those suckers out there. That’s a great return by any standards.

  Statement 2: You will have the opportunity to become an SMS short code dealer and appoint your own resellers to target businesses that advertise their services to their clients on our SMS short code platform. Your resellers can be people that you appoint or other businesses. Did anyone say pyramid scheme?

  Statement 3: The capital layout that is required from you is R250k of which R50k will be reinvested back into your dealership for training, advertising and marketing to get you launched and guarantee your success.  Excellent – so I get a R50k discount on day 1. So I’m only R200k out of pocket for 11 months.

  Statement 4: After one year you will have made back R300k and your income will be R50k per month. After 2 years you will have made back more than R1million because of recurring income. Great news. Great returns, and what mathematical formula was used to do that calculation?

  Statement 5: Make back your capital layout in less than 11 months. Again the mathematical genius at work here, pulling those greedy people in, gently, like an experienced fisherman.

  Statement 6: Only 24 dealerships available nationwide. So this is a limited offer, for those first movers. And yet a spam email was sent out. If the business genius gets 24 takers at R250k each that gives him a cool R6m, not bad for a the cost of a spam email design and the purchase of an email database. Another thought: So who is going to monitor that only 24 dealerships are sold?

  My conclusion – this is a great offer – If you are a moron. What is more concerning is that people will look at this email and think: “What the heck, let me call Gert and hear what he has to say… I can always say no.” That is where the trouble really starts.

  There is no doubt that Gert is a great sales person, he will have a high conversion rate, probably of 50%. And he will discount his initial offer until you take the bait. Simply by delaying the balloon payment from the beginning to somewhere in the 24 month period. My advice – Don’t call Gert…

  Attempts to get hold of Gert resulted in numerous dropped calls, and excuses about being in meetings. It might have had something to do with the fact that I didn’t allow my number to be displayed on the network.

  Let the investor beware and aware. I’m just saying, that’s all…

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And now for the good news… There is a dearth of good news this week.

  It appears that terminally ill brother to the country’s new spymaster Schabir Shaik,  has asked for a presidential pardon, and probably took the second prize, which was a ‘get out of fail free’ card instead. It transpires that the convicted fraudster and corruptor of morals applied to the very person whom he was found guilty of corrupting, for the pardon in April. You have to love the irony. The question is whether the favours for political power merry-go-round has finally come to a stop, or not.

  More good news is that Bafana Bafana players finally have nowhere else to hide, with the announcement that the country’s football coach has been fired, eventually, after failing to produce results to what can be compared to 8 quarters in business terms. If he was the CEO of a listed business his board would have fired him months ago.

  Now the players will have to start delivering on their mandate and start playing football, or else. Well, we aren’t sure what will happen. Fire the whole team, perhaps, and replace them with the under 12 A team from any junior school of your choice. As an ex national sports person we always took the blame when we didn’t win. And when we didn’t win for more than two games we changed the team, after identifying the problem. And the change usually made a difference.

  And good news for long-suffering investors, widows and orphans in the Ovation Global platform debacle involving Fidentia, is that there is an end in sight. The court took another step down the road when they gave any dissenting respondents two weeks to disagree and pay for the privilege. The not-so-good news is that investors could wait up to two months before they may get any sight of their investment capital. The catch, it appears is that the curators will keep around 10 percent to cover any residual risk.

  And finally, the FSB has announced that the media will be able to attend enforcement committee meetings where alleged wrong-doers will get their ‘time in court’, to coin a Selebi-ism. The reason the media weren’t given this opportunity in the past was because the FSB offices didn’t allow for a public gallery.  This should be fun. The media can watch as someone is found guilty, pays a fine and doesn’t admit guilt. Meanwhile across the ocean USA people are spending life in prison for ponzi schemes, and convicted insider traders get lengthy jail sentences. At least locally the media then have the option to publish pictures of the alleged non-criminals – in a name and shame game. And we all know how effective that is.

  Don’t you love all the good news?  Oh yes and good news for the long-suffering investors in Mutual & Federal, majority owner Old Mutual has finally decided to be done with all the pretence and take out the minorities, delist the insurer and refocus the business. And not a moment too soon.

  And more good news just in - Another Leaderguard broker was bust and told to pay back R600k plus interest to two pensioners whom he directed to the spot forex trader. That’s enough good news for now.

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