Even after RMB Holdings unbundled its largest asset — a chunk of FirstRand — there is still no talk of its sibling Rand Merchant Investment Holdings (RMI) spinning its holdings out to shareholders.
Yet the future of investment trusts is coming under greater scrutiny.
Take, for example, the criticism of another investment vehicle, African Rainbow Capital (ARC), which had sought to pay its management team more than R200m in fees out of the proceeds of a R750m rights issue.
Says RMI CEO Herman Bosman: "We see similar businesses charging 1.5% or more as a management fee, but we worked out that our management costs are 0.22% and we watch them closely. And there is no private equity-style fixed fee."
Fees aside RMI, which has much more mature entities than ARC, can at least rely on dividend flows.
This year, though it will not be declaring a final dividend, it will still receive cash from its two short-term insurance businesses: unlisted Outsurance, which RMI’s accountants consider to make up 40% of the portfolio value, and UK-based Hastings, worth R8bn on the London Stock Exchange.
Both operate on the direct to consumer model, but Outsurance CEO Marthinus Visser says about 90% of the Hastings distribution is through aggregators — similar to Hippo in SA.
The second-largest holding in RMI is its 25% stake in Discovery, which is worth about R17bn at current market prices.
For now Momentum Metropolitan Holdings is the runt of the litter, as RMI’s holding is worth "just" R7.1bn.
RMI trades at a 20% discount to the internally appraised value of R55bn, but this values Outsurance at just a small discount to the far more diversified Santam, and at a time when its direct marketing rivals such as MiWay and Naked are building up to scale.
Analysts were expecting a blue ribbon year from Outsurance as its book is dominated by motor policies, but earnings fell by 7% to R2.2bn.
Its Australian subsidiary Youi had to pay out for bushfires and floods, and the Covid-related business interruption payouts, though great PR, still cost it R198m.
"We also provided premium relief up until July in SA and September in Australia," says Visser. "And our cost base has increased as we move to a face-to-face agency model in our commercial and underwritten life units."
It has also started to distribute funeral policies through Shoprite.
Bosman says there needs to be a way to unlock the value of Outsurance, arguably one of the best financial services businesses in SA.
But he says there is a stronger argument to keeping RMI as it is, since it has four large businesses as well as some options available for its start-ups, RMI Investment Managers and Alpha Code.
To reflect these new ventures, RMI has changed its name from Rand Merchant Insurance to Rand Merchant Investments — but don’t be fooled,
The first line in its consolidated income statement is gross written premium, which is considerable, at R17.3bn.
And while other investment holding companies — like Remgro — have fallen out of favour with the market, Lonwabo Maqubela, portfolio manager at Perpetua, says: "The diversity of the RMI portfolio makes it a safer choice than a direct investment into Discovery or Momentum Metropolitan, which both have specific risks."
Year to date RMI shares have slipped 3%, while on a five-year basis they’re down 16.5%.
Discovery, however, has gained 6.8% year to date — though it’s up all of 3% on a five-year basis.
Momentum Metropolitan remains the laggard, down 29% since January and 23% weaker over a five-year period.
RMI has invested in a few strong managers such as Truffle Asset Management, CoreShares Asset Management and Northstar, but no fund manager believes the new ventures will make a difference to the bottom line over the next five years.
Alpha Code pays lip service to the RMB group’s reputation for innovation, as does its investment in Merchant Capital, a working capital provider and Prodigy, which provides loans to postgraduates.
Bosman believes a supportive shareholder such as RMI still has a role to play.
It is something of a brains trust with two of the RMB founders, Laurie Dippenaar and Paul Harris, still on the board.
Dippenaar’s father/son relationship with Discovery founder Adrian Gore was vital to the building of that group.
But most shareholders might want to keep it simple and invest in the underlying companies for their own account.
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