Two midsized financial services businesses reported results to March last week, each giving the same message to the market.
Alexander Forbes and Peregrine are far from strangers. They used to be joint owners of Caveo, a fund-of-hedge-funds business. And they have overlapping operations: Peregrine’s core division — Citadel, a wealth manager — recruited a number of its heavyweight staff members from Forbes’s Financial Planning Consultants unit over the years. With R51bn under management, Citadel is the leading independent wealth manager in SA, wearing a crown that was once Forbes’s for the taking.
Both businesses have quite new CEOs: Rob Katz at Peregrine and Dawie de Villiers at Forbes, both of them doers rather than talkers.
They are unlike their predecessors. Jonathan Hertz, after leaving Peregrine, found a second career marketing what he calls the "tropical island of Guernsey". He is something of an amateur when it comes to travel, compared with former Forbes boss Andrew Darfoor, who, it is said, spent more time in first-class cabins than in the office.
Neither Katz nor De Villiers has the grandiose empire-building ambitions of their predecessors; in fact they have the same favourite phrase: "capital lite".
Katz sold Peregrine Securities for R910m to its management and Legae Securities. It is highly capital intensive, not least because of its prominent prime-broking activities. Peregrine also unbundled its proprietary investments, including the proprietary holding in Peregrine Capital’s hedge funds, into the listed Zarclear vehicle. Katz does not have the flamboyance of Hertz, who in turn is something of a mini-me version of Peregrine founder Sean Melnick, but he has reviewed the composition of the group as a dispassionate accountant.
The CEOs of Alexander Forbes and Peregrine have the same favourite phrase: ‘capital lite’
The structure is quite simple: wealth management through Citadel, local hedge funds through Peregrine Capital and global alternative funds through Stenham. Peregrine also owns half of Java Capital, a corporate adviser that Hertz bought during one of his lateral moves. It is struggling, as property listings have been a large part of its income and there haven’t been many of late.
Streamlining
Forbes has just started the journey of simplification. It plans to sell its profitable but subscale group risk, motor insurance and retail life businesses, which will greatly reduce its regulatory capital needs.
Forbes has two scaled businesses: its multimanager, previously called Investment Solutions, with R342bn under management; and its retirement fund administration, centred on the R81bn umbrella fund. It is dismantling its retail business, which will be refocused on offering preservation funds and annuities to members of Forbes’s funds.
De Villiers has cancelled Darfoor’s plan to open up the Forbes product suite to independent advisers. But Forbes’s successful Performer portfolio is available on a number of linked product platforms. Advisers can buy these just like any other fund, such as Allan Gray Balanced; and Performer, at R125bn, is almost as big as the Allan Gray fund.
Peregrine doesn’t have operations in the rest of Africa, and Alexander Forbes is withdrawing rapidly: soon only the Botswana and Namibia employee benefits units will be left. The business in Kenya has been sold, and those in Uganda and Zambia will probably close soon.
To make the withdrawal more dignified it has replaced its in-country presence with a range of services branded Arrive, to be jointly managed with Mercer, Forbes’s international partner.
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