Confianza disqualified from P500 million offer
BPOPF board worried by connection with BOPEU company
CEO has past relationship with Babereki Investments
BPOPF awards new mandates worth billions
Confianza Capital, a start-up local asset management firm shortlisted for the local listed equities under Botswana Public Officers Pension Fund (BPOPF) incubation programme has lost P500 million due to a past relationship between its Managing Director Don Gaetsaloe and Babereki Investments –a company wholly owned by embattled Botswana Public Employees Union (BOPEU).
Confianza is a start-up company that has never conducted any business transaction. It was registered on 15 September 2016 owned by Gaetsaloe (55%) who is its Chief Executive Officer and Carol Jean Howard (45%) who is the Chief Investment Officer. The decision to disqualify Confianza from the incubation programme was made by the board of trustees at a special board of trustees meeting at the end of July 2018. The disqualification was arrived at following a legal due diligence conducted by lawyers appointed by BPOPF on the company and its directors, which revealed that Gaetsaloe has through his other company helped Babereki with some investment decisions. It has also emerged that when the legal experts interviewed management of Babereki the trade union company claimed that they have lost about P30 million due to poor investment advice rendered by Gaetsaloe and that they are still carrying out a forensic audit on the deals. Apparently Babereki officials claim that Gaetsaloe is part of the forensic audit, despite that he has never been interviewed or advised that he is implicated.
Although the legal experts had only advised BPOPF to pay attention to the risk and to either appoint Confianza on a conditional basis or delay the awarding of the local listed equities portfolio pending the completion of the forensic audit at Babereki, the board disqualified the company.
BPOPF Principal Officer Boitumelo Johnson has refused to discuss the reasons why Confianza was disqualified, safe to confirm that indeed the board of trustees made the decision. She cited confidentiality. She would not even say if such a decision was heavy handed on the start-up or explain if a similar investigation was done on all the directors of start-ups that bid for the assets. "It was a rigorous vetting process," was all she could say.
Only two asset managers made it past the rigorous vetting process. Aleyo and Africa Lighthouse Capital were awarded private equity mandates, each worth P500 million. The mandate has a 10 year exit period during which the asset managers will invest in business from as little as P15 million.
Gaotsaloe is former Chief Executive Officer of African Alliance, who emerged one of the biggest winners in the awarding of new mandates to asset managers by the BPOPF board at the same meeting where his new company was rejected.
Although Johnson declined to disclose the names of asset managers awarded new mandates and their worth because they are yet to sign new contracts The Patriot on Sunday can reveal that African Alliance, Bifm, Investec and Allan Gray were the only winners. Under Botswana equities portfolio African Alliance walked away with P4.25 billion followed by Bifm at P4.13 billion with Allan Gray concluding the transaction at 4.12 billion.
Bifm is leading the pack under the Botswana fixed income portfolio taking P2.3 billion just above African Alliance’s P2.0 billion with Investec bringing up the rear with the remaining P1.5 billion. On the Botswana cash portfolio, Bifm once again came out tops taking home P650 million followed by Investec with P570 million and African Alliance with P407 million.
Now that the court of appeal has confirmed the appointment of Peter Collins as the statutory manager of CMB, Johnson confirmed that BPOPF was meeting him on Wednesday afternoon to pave the way forward. Collins is expected to resume his management duties at CMB immediately after he was interrupted by a plethora of court cases challenging his appointment. He has already submitted a preliminary report which formed part of the documents filed to support the NBFIRA case, which was decided in favour of his appointment last Friday.
In the preliminary report, cited extensively by Justice Ian Kirby in his judgment, Collins raised a number of red flags over the conduct of the Directors of CMB being Rapula Okaile and Timothy Marsland. The Statutory Manager is expected to submit a final report to the regulator upon completion of investigations. Johnson had confessed the naivety of the pension fund in her court papers, which Justice Ian Kirby noted in his judgment. On Wednesday she said BPOPF has emerged wiser from the CMB debacle and tightened any loose ends to secure the assets they manage on behalf of pensioners. She revealed that going forward they have assembled a team of experienced experts to advise on any investment decision and a thorough due diligence will become the order of the day. "We suffered serious reputational damage due to the drawn out CMB dispute. We have been forced to adopt a tough stance against stakeholders, which has struck fear in some service providers who now fear termination of contracts. We will be meeting our stakeholders and service providers to assure them that we are only trying to minimise risks on investment. Otherwise we want to assure all that the P62 billion assets, which belong to pensioners are safe," she said with renewed confidence.
How it started
No accounting, no audits, no valuations
CMB are the Fund Manager and General Partner (GP) in the private equity portfolio, while BPOPF is the Limited Partner (LP). From late 2016, the latter noted several issues with BOP that needed to be resolved as soon as possible. One of CMB's role in the partnership is to perform quarterly and monthly valuations. From inception quarterly and annual valuations were not being done in the usual manner as most of the assets were recent acquisitions. The valuations were assumed to be the acquisition prices as noted in the drawdown notices.
However at the March 2017 year end, it was necessary that CMB values assets using IPEV Guidelines as stated in the contract but they resisted and insisted on using the acquisition costs only as "nothing major had changed". BPOPF and external auditors disputed that position and sought an independent valuation. An independent expert Imara was selected to carry out the valuation but CMB refused them access to the investments. After a protracted standoff, BPOPF allowed CMB to submit a valuation with evidence of an independent review. The valuation that was eventually submitted four months later was not acceptable and the auditors rejected it. Further, there was no evidence of an independent review by the BOP external auditors.
Auditors and legal opinion provided to BPOPF was therefore, that the pension fund has unlimited access to the BOP assets and are entitled to meet directly with the private equity fund auditors. BPOPF has also been advised that disputed valuations may be referred to an independent expert whose findings will be compared to those submitted by CMB. The audit report also reveals that no formal quarterly and annual valuation reports were submitted for reporting purposes, as per the partnership agreement and the AMS agreement. The violation of these reporting requirements led to auditors concluding that CMB had defaulted and breached the agreements.
Conflict of interest
The original agreements between BPOPF and CMB clearly stated that Grant Thornton was to be appointed as the BOP's external auditors. However, it was not until the first quarter of 2017 when the anomaly of Grant Thornton not being formally appointed was raised that it came to BPOPF's attention that in fact the company had been accountants of the BOP in the valuation period. Therefore, if Grant Thornton were to double as auditors it would create a conflict of interest.
Once again CMB was deemed by legal experts to be in default of its obligations under the partnership agreement by not appointing Grant Thornton as auditors for BOP from inception. "By having them included in the initial contracts BPOPF had consented to Grant Thornton's appointment. Even though CMB has a wide discretion on the appointment of advisors, the appointment of Grant Thornton to fill both roles would be ill-advised and negligent," the legal opinion reads.
Auditors on the other hand, advise that if the finding is correct a different external auditor will need to be appointed for BOP and a contract amendment made. They observed that while it is only CMB who can appoint or remove the external auditor due to sweeping powers in the partnership, BPOPF has the right to approve the appointment after ensuring that there are no conflicts.
Although the BOP is a local private equity fund whose capital is not to be noted on a public exchange, CMB was found to have invested in Wilderness Safaris by informing BPOPF that the company was about to delist. It was further discovered that cash from the transaction had been banked in South Africa to enable further purchases from the Johannesburg Stock Exchange (JSE), despite that the mandate is a local one. Wilderness Safaris and Botswana Stock Exchange (BSE), where Wilderness Holdings is listed denied the de-listing claim. Thapelo Moribame, BSE Market Development Manager, said on Tuesday that they are not aware of any intention to delist by any of their listed companies, let alone Wilderness.
Wilderness Holdings Limited, a company linked to President Ian Khama, listed on the Botswana Stock Exchange and Johannesburg Stock Exchange’s Africa Board in 2010. Wilderness owns and operates more than 60 luxury safari camps in nine African countries, mainly marketed and operated under the Wilderness Safaris and Wilderness Collection brands. In most countries, the camps are serviced by Wilderness Air, a company which recently pulled out of a controversial acquisition of national airliner -Air Botswana- after a leaked memo revealed how Khama pressured and instructed cabinet to approve the takeover.
BPOPF's finding is that investments in listed securities is not part of the mandate of the GP's investment committee and/ or the investment policy but could not influence its decisions as CMB has all the control over investments. The only way for BPOPF to have assurance that the investment of the private equity fund is adhered to is to amend the mandate of the investement committee or the investment policy.
CMB was also found to have invested BPOPF local private equity funds with Kawena Investments, which is not a local company. Online searches for Kawena shows that the South African based company's core business is Financial Services and Investments in the region, particularly in Mozambique. It is part of a large group of companies in different sectors.
CMB has also invested in Makuba airlines, who were paid for with capital that was not drawn down for that specific purpose. According to Business Traveller Africa, Makuba is an airline set up by Zambian expatriates and locals in 2013 competing with Proflight, the only airline then providing flights within Zambia. The plan was that the airline be operational before the United Nations World Tourism Organisation general assembly, co-hosted by Zimbabwe and Zambia in August 2013. The two aeroplanes used initially include a Turbo Prop ATR 42-500 and an ATR 72-500, which were maintained by Air Botswana. The ATR 42 has a carrying capacity of 48, whilst the ATR can carry 72.
Further, except for one, even the approved investments were found not registered in the name of BOP, which raises legal ownership issues.
Excess cash holdings
According to the partnership CMB should drawdown only what they need for investment purposes, which must only be used for the approved investment and for no other purpose. In the initial valuation reported by CMB there was cash held in excess of P28 million, some in South African rands. The partnership agreement clearly sets out obligations of the GP to manage distributable cash. At some stage CMB purchased equity in Makuba airlines without a drawdown notice, and when questioned about the transaction they claimed that they had used cash that they held.
Curiously, auditors found that there is no evidence of the existence of a BOP bank account where cash is held or for what reason it is held, which calls to question the accuracy of the drawdown notices. BPOPF is therefore clueles about the level of cash held in excess and the reasons. Only an independent valuation would help determine this.