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Prudential CEO Bernard Fick outlines ownership changes

Prudential CEO Bernard Fick joined the BizNews Power Hour, speaking to the team about changes to one of the country’s largest investment managers. The company recently issued an announcement, outlining ownership changes and even the possibility of a name change. Fick summarised the details and also weighed in on Regulation 28. – Jarryd Neves

Bernard Fick on changes at Prudential:

I guess the details are fairly simple. We are – and have been – owned by M&G investments for the last 25 years, at various levels, recently a wholly owned subsidiary. Over time, as we did various empowerment transactions (and also staff equity transaction) the ownership dropped down to 49.9% in about 2012. We announced today that they will be retaking a majority stake. They will be purchasing 0.2% – together with staff from our empowerment partners – to take the M&G stake back to 50.12% – which returns us to a subsidiary of the group.

I guess the more important question is, why would we do that? M&G de-merged out of the Global Prudential P.L.C. Group about two years ago. Even though we carry the Prudential brand, we’ve always been owned by M&G, the investment management arm of the group. As an independent business – which is also now listed in London – has set a strategy to build out a global savings and investment business. They’ve done that over the last two-year period, setting up offices in Chicago, Singapore and Paris.

Then they realised they’ve got a business in South Africa that’s been a very successful, fully-fledged and independent operation with particular skills in emerging market African fund management. It would be useful – as part of that globalisation strategy – for us to perhaps bring that business more into the fold. They are effectively signalling that through the small increase in equity, that returns us to subsidiary status.

On whether Prudential is still proudly South African:

We certainly think of ourselves as a South African business. Our staff still own a very substantial stake. The empowerment shareholders – The Thesele Group – still owns 21.8%. So the economic interest is really nominal, in terms of the change. We’d certainly argue that half of the business, effectively, is still owned by South Africans.

And of that, about 61% is indeed owned by black South Africans. If you consider it as a free float – not that we are publicly listed – a very significant portion of our significant shareholder base is, in fact, empowered and that makes us very much a South African business. 90% of our assets are third-party South African investors and some global investors that we service and want to continue servicing well. A very small portion of our assets under management, effectively, are what we would argue, group assets.

On the R250 billion under Prudential management: 

Approximately 85% would be from South African investors and then some international investors as well. Then a portion of group assets, I guess, which is effectively international and European investors that have bought Prudential or M&G savings product, where assets are located on a global basis. We fight for a portion of those allocations. It’s closer to R200 billion, [that] would be from South African investors.

On the Prudential local equity fund:

I think the arguments for holding them (banking shares, precious metals producers, British American Tobacco and Growthpoint, among others) would vary and typically would be valuation based. If you take the banking sector, we certainly think those shares are cheap. We would argue the market overreacted into the crisis. Certainly, the banks are going to see some bad debts, but they are very well capitalised.

Even though the dividends were suspended for a period, once those dividends come back on stream – and I think the economic recovery happens once we turn on the economy again – we think those are opportunities. You were offered an opportunity to buy South African banks at a generational level of cheapness. We certainly exploited that. You don’t need much of an improvement. You just need the bad news to get slightly less bad for some of those prices to start rerating.

We have seen some of that already happening. We certainly observe that valuation appears to be beginning to bite. The property sector is certainly a challenged sector – we can’t hide that. There, we are very careful about choosing those companies that we think are of high-quality and had stronger balance sheets. On the precious metals side, there, the earnings – I think – are going to be supported by very strong precious metal prices.

On the exchange control circular:

Certainly, we are not part of a lobby to keep a lid on offshore investments. We would encourage free and open markets. That, I think, is a statement we very publicly make. The issue of the circular was more about the confusion, the way that it was, I think, drafted and what it entailed. Effectively, it allowed one particular form of investment vehicle – a listed ETF – to be classified as domestic. It’s an open-ended vehicle, so it’s much like a unit trust fund. Therefore, if the circular stood as some people interpreted it – and there was some interpretational differences – it would have allowed someone to effectively buy an ETF and gain full offshore exposure.

The question that we posed certainly to the regulator was, ‘if that was indeed your intention, why not do the same for the existing unit trust environment?’ Your rand denominated offshore funds, which are effectively exactly the same as ETF, except that they’re not listed on the JSE.

I certainly would welcome some relaxations, but I don’t think it is unreasonable to expect that your regulators would say ‘we do need to protect potentially some less qualified investors’ and we do that through prudent guidelines.

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