Fund managers urge speedy completion of Resilient probe to restore confidence
While the Financial Sector Conduct Authority has cleared Nepi Rockcastle, it is also still to rule on Fortress and Lighthouse Capital over scandal
Progress in unravelling the scandal that led to the collapse of share prices of companies in the Resilient group has not been fast enough to restore confidence in listed property, fund managers say.
Only a speedy finalisation of the various investigations will herald a recovery in the sector, which in 2018 had its biggest decline on the JSE in more than two decades. While the sector has returned about 5.8% in 2019, it is only half the 11.6% delivered by the all share index.
While a weak domestic economy played a role in the sector’s underperformance in 2018, Resilient’s woes, which caused about R100bn to be shaved off the group of companies’ combined value, infected the sector, prompting some of the country’s biggest fund managers to demand a forensic investigation.
More evidence that regulators are making some progress emerged on Monday when Nepi Rockcastle, the East European mall owner, said the Financial Sector Conduct Authority (FSCA) found no evidence of false and misleading reporting by the group in 2017. The FSCA also cleared the directors and staff at all four companies of insider trading.
It is still to rule on the other members — Resilient, Fortress and Lighthouse Capital.
Evan Robins, listed property fund manager at Old Mutual Investment Group, said on Wednesday only finality in the investigation will remove the uncertainty that has plagued the sector for nearly 18 months.
“It needs to be completed and the results released for all four companies before the market can move on from the problems,” Robins said.
That was echoed by Garreth Elston, chief investment officer at Reitway Global, a fund that buys shares in property companies. “Any results bring confidence and certainty back to the South African listed property sector which has been depressed,” he said.
Keillen Ndlovu, head of listed property funds at Stanlib, said while it is “good to see the progress” from the FSCA, stakeholders in the sector are anxious for the probe to end, more so because the four companies concerned comprise about a quarter of the SA listed property index.
The FSCA has been investigating the stable since early 2018. The investigation began after a sudden sell-off, followed by allegations by hedge fund and asset managers that directors and management had used interrelated party deals and share price manipulation to enhance profits.
The decline in the companies’ values dented the savings of pensioners, who were exposed to them directly or through funds they hold with pension funds and asset managers.
Stanlib was among the companies that demanded the probe, with the Public Investment Corporation, Allan Gray, Coronation, Old Mutual, Investec, Sanlam and Prudential. Only Fortress agreed and it hired PwC to conduct the investigation.
The listed property index lost 25.26% in 2018, including reinvested dividends, compared with an 8.2% decline for the overall index.
Alex Pascoe, leader of the directorate of the market abuse investigation team at the FSCA, said the results of the investigation will be released piecemeal. The FSCA probe into the rest of the Resilient stable could take months, he said.
Elston said that while listed property has recovered a bit in 2019, significant economic growth is needed to sustain the recovery.