African Rainbow Capital Investments (ARC Investments), the empowered investment firm founded by Patrice Motsepe, plans to consolidate and trim its portfolio of 47 investments to about 30 over the next five years and use the proceeds to pay dividends to shareholders and buy back its own shares.
The JSE-listed investment firm, whose only asset is the ARC Fund, a vehicle with 47 investments spanning telecommunications, mining, agriculture, property, insurance, asset management and other sectors, rates the intrinsic value of that portfolio at R12.28bn. That is almost 62% larger than its R4.7bn market capitalisation, the value assigned to the listed entity by investors who hold its shares.
“The outstanding opportunity we have at this point is investing in our own share,” said Johan van Zyl, co-CEO at ARC. “It’s by far the best investment that we can get. It’s absolutely rare to find an asset where someone is willing to sell it at a discount of more than 50% of what its intrinsic value is.”
While investment holding companies often trade at significant discounts to the combined value of their underlying assets, often prompting shareholders to pressure management to either create additional value or sell off investments and distribute the money via dividends, Van Zyl said he sees this as an opportunity to buy into an asset base that is being undervalued by the market.
“In this way everyone who is invested in our share benefits — they get this kicker,” said Van Zyl. “We know the portfolio, we know what we’re into ... it shows confidence.”
While ARC Investments still has a 47-company portfolio it has been whittling that down by reducing its stakes in investments like Afrimat and Fledge Capital. It has also reached an agreement to divest entirely from MetroFibre and is winding down its Mooiplaats coal mining operation.
Van Zyl says the overall portfolio will be further “pruned” through consolidation, which will involve repositioning some of the underlying assets under the banners of its larger investments such as Sanlam Third Party Asset Management, Alexander Forbes, TymeBank and Fledge Capital.
That will result in its portfolio being reorganised into various umbrellas spanning asset management under Sanlam; pensions, advice and administration under Alexander Forbes; and fintech and banking under TymeBank. Its remaining smaller investments will fall under Fledge Capital, essentially a venture capital entity that houses investee companies such as WeBuyCars, Oasis Water and Safari Outdoor.
Yet by far the most ambitious of ARC Investments’ long-term vision is its plan to turn its investment in Sanlam’s asset management business into a R1-trillion black-owned investment conglomerate. While this deal has been on the cards for several years, with speculation having run rife that Absa Capital may be among the prospective targets, no details have yet emerged.
Van Zyl was hesitant to provide details, citing confidentiality, but he did disclose that ARC Investments and its partner, Sanlam, are in talks with “two or three” groups, which he hopes will result in transactions by the end of 2022. Considering that Sanlam already has assets under management of close to R600bn, the addition of a sizeable competitor could easily take the resultant entity close to the R1-trillion mark.
“If we can add one or two other players to what we have we will come close to realising that objective,” said Van Zyl.
“We won’t quite be there but if the market grows at 10% and we get another one to join us in this conglomerate it’s not far-fetched to dream a bit and think we could have a black-owned asset manager with R1-trillion under management and not be called the PIC,” he added, referring to the state-owned Public Investment Corporation, which is the biggest asset manager in Africa.
Van Zyl also hinted that closing the transaction will be helped by the government’s increasingly strident push to transform the asset management sector. Deputy finance minister David Masondo said last year the government would look to bolster regulations around transformation to ensure the sector becomes more representative.
“Don’t underestimate the drive from the government in this area where black people have been largely cut out,” said Van Zyl. “If you really look at it, one of the least transformed areas is asset management. A lot of that regulation ... coaxing ... prodding people to do something about it is really helping out.”
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