Fidentia+success+secret,+Barry+Sergeant,+Moneyweb

Moneyweb, Fear and Loathing, 16 February 2007
=Fidentia’s 'success' secret=

//Where others have been before, J Arthur Brown exploited a flaw in the law.//


 * Barry Sergeant**

Who remembers May 11 2004? On that day, the Pretoria High Court ordered that the Joint Municipal Pension Fund (JMPF) be placed under the management and control of an independent board of trustees. There was good reason for this. The erstwhile trustees had lost R1,4bn of the JMPF's assets through "investments" in agricultural derivative contracts, covering the period March 2001 to December 2002.

In street language, these dubious and motley characters blew more than a billion rand of pensioners' cash by gambling on mielie futures. Eish.

The R1,4bn lost equates, roughly, to the kinds of losses alleged to have been made by Cape Town based Fidentia, recently placed under curatorship. The JMPF story seems to have gone away - there's nothing sexy about mielies - but the Fidentia case is in everyone's face.

The mielie debacle was just another case of reckless behaviour by "trustees" scattered among roughly 20 000 pension, provident and related funds that litter the South African landscape. The status of South Africa's retirement funds industy is one of the country's great shames, one of many that are now far too numerous to mention.

The key concern - perhaps - is the practice where retirement funds blur the distinction between management of a fund (how the money is invested) and the administration of the fund (who the money comes from and who it goes to). The two should be absolutely separated in law, in practice, in accounting, in economics, in money, and in fact. Instead, it's like kissing your sister.

For years, the registrar of pension funds, Dube Tshidi, one of the very best people working in the South African government, has lobbied for this practice to be outlawed. Amid the battlefield, he has persuaded a number of giant funds to separate the two functions, including the Municipal Employees Pension Fund, and the Iscor (now Mittal) Pension Fund. But without a fundamental change in the law, Tshidi is fighting a losing battle.

The current system, fully vulnerable, was exploited by J Arthur Brown, founder and executive chairman of Fidentia, in a classic, albeit clumsy, manner. The story starts in 2002, when an entity called Mantadia Asset Trust Company invested with Old Mutual Unit Trusts. Mantadia subsequently terminated its investment with Old Mutual during October 2004. Upon this seminal event (Fidentia Asset Management acquired its financial licence in September 2004), Old Mutual Unit Trusts transferred the full investment value - roughly R1,1bn - to Mantadia's bank account. Mantadia later had its name changed to Living Hands (Pty) Ltd.

Then there is the Living Hands Umbrella Trust (LHUT), previously known as Matco. It is crucial to note that this entity, being a trust, cannot be "bought", but Living Hands (Pty) Ltd, being a profit-seeking entity, can, and was, "bought".

LHUT is a somewhat special entity, established by various pension funds, not least the Mineworkers Provident Fund, to accept death benefit payments in respect of minors (for the fundis, the disposition of these benefits is governed by section 37C of the Pensions Funds Act, No 24 of 1956). LHUT holds funds in trust, as mentioned, that belong, literally, to tens of thousands of minors, mainly orphans.

LHUT ended up, naturally, as a Fidentia "client". Since July 11 2006, LHUT has had three trustees, viz., Motsei Christine Komane, Danisa Baloyi, and Hjalmar Mulder. Until very recently, Baloyi was a director of Living Hands (which, most crucially, administers LHUT) and also a director of Fidentia Holdings. Eish.

Mulder is lots of things; among others, a director of Living Hands, Brown Brothers, and CEO of Fidentia Holdings. In the words of inspectors from the Financial Services Board, the positions of Mulder and Baloyi as trustees of LHUT and as directors of various Fidentia entities "placed them in an untenable position relating to the performance of their fiduciary duties as trustees. The status quo exposes the trustees to a situation of conflict of interest. In our opinion they will not be able to exercise their discretion in a manner that will be to the best interest and general welfare of the beneficiaries".

In street language, the poop had hit the fan. Previously, the conflicts of interest were worse. Until September 19 2005, the LHUT trustees were Arlenta Transactional Services (now Fidentia Transactional Services, owned by Fidentia Holdings), represented by Mulder and Andrew Herbert Tucker, both executives/employees of Fidentia. Then until July 11 2006 the trustees had been Living Hands represented by Brown himself, Mulder (again) and Baloyi (again).

In a nutshell, Brown acquired control of Arlenta, and also Living Hands, always ensuring that Fidentia in-house trustees controlled LHUT. As such, Brown enjoyed unfettered control of more than R1bn in assets. The resignations of Brown, and then later Baloyi, from Living Hands, suggest that both were acutely aware of their impossible conflicts. The fall out is tragic: today, tens of thousands of orphans are no longer receiving money from LHUT.


 * From: http://www.moneyweb.co.za/mw/view/mw/en/page1655?oid=71292&sn=Detail**

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