Stephen Cranston Associate editor
Thabo Dloti. Picture: MARTIN RHODES
Thabo Dloti. Picture: MARTIN RHODES

Former Liberty CEO Thabo Dloti has kept a respectful silence since he left two-and-a-half years ago. No dirty linen was washed when he was replaced by David Munro, an insider at parent Standard Bank. Liberty chair Jacko Maree was a model of tact.

This contrasts with the drama around his old friend, Old Mutual CEO Peter Moyo. “I was part of Old Mutual for 22 years, says Dloti, “and worked closely with Peter: he was on the Liberty board when I was CEO. Everybody knew about his relationship with Amabubesi (later NMT Capital). Co-investing in the company was seen as part of the group’s BEE strategy. So I don’t know what changed.”

There was no such issue when Dloti left Liberty. He says he underestimated the influence of the bank on Liberty and argues that the status quo is untenable: “Either Liberty should be bought out and become the bank’s wholly owned bancassurance division, or it should be let go ... Johan van Zyl, my counterpart at Sanlam, said the best thing he did was to divorce from Absa.” And Dloti says there isn’t enough margin for both a bank and a life office from bancassurance products such as credit life. “It should be managed by a low-cost, in-house bank provider.”

Absa was the first bank to go this route, and more recently FNB ditched its bancassurance arrangement with Momentum and set up wholly owned FNB Life. FirstRand CEO Alan Pullinger told me recently that traditional bancassurance means supporting two different companies and administration systems. Nedbank, now no longer a subsidiary of Old Mutual and already a large player in credit life, is expanding its insurance offerings.

Not for the first time, under Dloti the short-term perspective of the bank clashed with the long-term perspective of a life office. Dloti was keen to keep the direct operation open and he hired former Santam CEO Leon Vermaak to set up a short-term insurance business. The bank forced these operations to move to the bank, using as the chassis of the bank’s direct sales and buying the short-term insurance platform for its own use.

Dloti says he could see the case for downscaling some operations but not shutting them altogether. Not that this approach would have made sense for all Liberty operations: it is hard to see how it could develop a competitive advantage in its asset management business, Stanlib, outside the rand monetary area, and Munro has disposed of Stanlib Ghana, Kenya and Botswana. Its health businesses in Africa probably have limited potential.

Dloti always believes the CEO of Liberty was responsible to all stakeholders and must be especially sensitive to the sentiment of minority shareholders. He was puzzled to see that Liberty results are now held in the Standard Global Leadership Centre in Morningside, Sandton — hardly convenient for the Liberty offices in Braamfontein.

Dloti says large life offices run the risk of going through a cycle of ever-increasing costs, which destroys value and leads to the erosion of margins. They need to find a simpler way of doing business, with streamlined processes and simpler product lines. This was achieved at Old Mutual Group Schemes (now Mass & Foundation Cluster), which Dloti ran for several years.

As a former head of the Old Mutual Investment Group (OMIG) and Stanlib, it was natural for Dloti, along with his partner, Discovery veteran Themba Baloyi, to invest in Prescient, through their Sithega Holdings investment vehicle. Prescient is a quant-based fund manager, with a timely focus on risk management. It has had a large turnover in staff, but its chief investment officer, Guy Toms, remains and is considered one of the best bond managers in SA.

Prescient has a unique positioning in an industry divided between the “active” and “passive”. It doesn’t take fundamental views on shares but looks out for anomalies in pricing. Prescient also runs the second-largest white-label unit trust administrator after Boutique Collective Investments. As an empowered player, Prescient has a good chance to grow in this space and few fund managers will want to leave it to insource this irritating and tedious function.

Dloti says Sithega can add value on retail distribution, which Prescient used to outsource to Nedgroup Investments. He believes Prescient can manage in a more decentralised “franchise-based” approach, a model Dloti introduced at both OMIG and Stanlib. Much of the discussion with Prescient is on the best way to handle emerging investment trends such as liability-driven investment. This is when a portfolio is built to provide certainty that a fund can meet its liabilities. It is used mainly but not exclusively by defined-benefit (final salary) funds.

Dloti is still working to bring a mid-sized insurer into Sithega. He says many of the life offices in its sweet spot are owner-managed and reluctant to share control. Dloti is chair of Rand Mutual, but that already has a BEE partner in African Rainbow Capital. Perhaps there will be room for Sithega at African Rainbow Life, which is modelled on Group Schemes as it operated under Dloti in 2002/2004. “But insurance is a tough industry to disrupt given that the start-ups are subject to the same regulations as the incumbents. We can’t just follow, set up a website and start selling.”

Perhaps Liberty will welcome investment from Sithega to fill the vacuum now that its previous empowerment shareholders, such as Saki Macozoma, have jumped ship. Dloti certainly has the CV to be a strong candidate to run Old Mutual, though to avoid all conflicts he would have to sell out of Prescient. But Dloti looks on his time at Old Mutual as a different era and seems in no hurry to get back into a large corporation.  

• Cranston is a Financial Mail associate editor.