Presented by Brenthurst Wealth

Fundsmith no longer wants to deal with South African investors

Ruan Breed*

You guessed it, the buzzword of the year in the South African financial arena for 2023 – greylisting, and perhaps also for years to come.

I remember it like it was yesterday when numerous market commentators shouted from the rooftops that the current greylisting of South Africa would:

  1. Initially not happen at all
  2. When it did happen, the impacts thereof would not be to the detriment of South African investors looking to transact outside of SA borders.

I beg to differ – this time not based on my own opinion, but rather by looking at the facts on the table.

One of the drums that commentators were beating initially was around the possible impact on the rand the greylisting might have.

It was said far and wide that the impact would be basically ‘next-to-nothing’. Let’s have a look:

South Africa was grey listed on the 24th of February 2023. But the news of the possible grey listing had been circulating for almost a year prior to the official announcement, meaning that the markets started to price in the imminent grey listing which was very clear to see by looking at our exchange rates. (I know that the exchange rate is not only driven by this matter).

By using the extreme skill of reading the chart below, one could clearly see that the greylisting did in fact have a significant impact on the exchange rate, and unfortunately, that is not where it stopped.

For roughly two years after COVID-19, the ZAR traded around R14 – R16 to the US Dollar. Roundabout mid-2022, the whole grey listing debacle became more and more imminent, and South Africa won’t escape this one.

The rand started reeling backwards at a rate of knots and traded at around R16.50 and higher and eventually turned just shy of R20/$.

In other words, point one and point two above – CHECK! The greylisting is as bad as it seems, and it does affect local financial institutions but also individual investors!

A couple of weeks back, we started receiving emails from the public (individual investors) raising their concerns that some of the large and well-renowned offshore asset managers requested these investors to liquidate their direct investments in some of these funds which are held directly by the individual investor, and to invest the capital via a local platform company.

One such fund is Fundsmith, one of the UK’s largest fund management companies which has a large following in SA who told its direct-SA clients recently: ”There is too much fraud happening in SA. We want you to move your money to a global investment platform that has the compliance experience we do not have.”

There was no beating around the bush by the asset managers, they were not trying to soft-soap their message – it was direct, honest and brutal. They, and many other global stakeholders and institutions, regard SA as a high-risk ‘entity’.

For all the curious readers (and I know there are many), the message from some of these fund managers really was brutal and direct.

Amongst others, it was ‘we have seen elevated levels of serious fraud perpetrated on South African investors, through mail fraud and other theft using sophisticated techniques.’ This was but one of the messages!

Furthermore, it is also stated in one of the letters received from a very well-known offshore fund manager with billions of assets under management that the European Commission and the UK Government also added SA to the list of high-risk countries.

This has a direct impact on the levels of checks and balances, verification etc. that will be required. In other words, paperwork, paperwork and more paperwork.

And if you still think they are not serious – a certain asset manager even went as far as to offer an additional payout of £500 if the investor reacted within 2023.

The greylisting and other issues – like fraud and attempted fraud – have become a major issue for global financial institutions dealing with South Africa and money from this part of the world.

Most global companies have tightened up their oversight over the flow of funds from South Africa creating all kinds of difficulties for investors and potentially their beneficiaries.

The suggestion by these asset managers, even though radical, doesn’t go far enough in my view. Moving the control and management of your funds to a global intermediary platform, the major ones we deal with still leaves a link to South African-based investors.

We have been suggesting taking this separation a step further by (a) moving the money to an international platform but at the same time moving the money into a global, discretionary trust in Mauritius.

The trust and Mauritian trustees then become the “client” and the investments and management via an intermediary such as Brent Wealth, based in Mauritius.

Moving large amounts of capital offshore has become specialized work in its own right. As we speak, we are moving capital abroad for some of our clients, but it comes at a cost. The process is extremely onerous with loads of paperwork, source of funds to be declared, source of wealth to be declared, the list just goes on.

The financial industry in itself is doing everything that it possibly can to tick all the right boxes on a compliance front, but as for our government, it simply doesn’t appear as if there is any urgency in attempting to get SA off the grey list.

In my view, these processes will only become more and more onerous going forward, and South African investors will find it increasingly difficult to move capital abroad.

Whether the grey listing had negative impacts on financial markets and institutions locally is probably still debatable, it is most definitely bad news when offshore asset managers start sending direct emails to SA investors in their funds. The red lights are flashing!

* Ruan Breed is a financial advisor at Brenthurst Wealth Stellenbosch and George [email protected]


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