Patrice Motsepe. Picture: Martin Rhodes
Patrice Motsepe. Picture: Martin Rhodes

The JSE’s newest listing, Patrice Motsepe’s African Rainbow Capital (ARC) Investments, has defended its fee structure and dismissed criticism that it is a cynical venture to make money out of black economic empowerment (BEE).

"We’re cynical about [the critics] not actually wanting to support empowerment," said ARC Investments joint CEO Johan van der Merwe.

Even if 49% of the now listed fund was "white money", if it "can be held to provide broader opportunities for an empowerment vehicle then why not?" the joint CEO said. "The money actually ends up in the hands of the shareholders and those are all black shareholders."

Shares in ARC Investments closed at R8.30, after opening at R8.68 a share. The shares were priced at R8.50 ahead of the listing, reflecting the company’s net asset value of R8.5bn.

Investment holding companies generally trade at a discount to their net asset value, and the price has attracted criticism. But Van der Merwe says "we believe that we’re listing at a 20% discount to net asset value", being the 20% discount at which the fund’s assets — stakes in Alexander Forbes, Bravura and telecoms group Rain, among others — were acquired.

"Those valuations were done by PwC. If you look at all the discounts they’ve put on it … the assets will give you a return of over 20% if you just keep [the stock]," said Van der Merwe.

The company’s management fee has also come under fire. Now at 1.75% of assets, that will drop to 1.25% when the fund size hits R15bn, while the management company takes a performance fee of 16% on returns above 10%. ARC said the fees helped compensate empowerment owner Ubunthu-Botho, which was locked in.

"They can’t sell. So part of that fee is going to pay for the illiquidity they ‘suffer’ by not only having to bring the empowerment credentials, but also by keeping it intact over time," said Van der Merwe.

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