Britam faces classic  case of new money posing threat to old

Britam Group Managing Director Dr Benson Wairegi looks on during the listing of the Britam Bond at the NSE on August 1, 2014. . FILE PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • Little did it occur to many that the   interests involved setting up a private equity firm, following  in the steps of his peers who had previously  left their plum posts to set up their own private equity companies.

  • Mr Dande left with three senior staff from Britam, with whom he set up Cytonn Investment Management, a property–focused equity fund.

  • The other three were  Patricia Wanjama (formerly head of legal), Shiv Arora (formerly investment analyst)  and Elizabeth Nkuku (formerly  portfolio manager).

Last week, Britam closed the market top of the list of losers, having shed 18.5 per cent of its share price to Sh27.50 a share. Three weeks ago, Britam’s share price had hit Sh40, the highest over the past one year. The change of fortune presents a case of a strategy gone wrong.

On August 31, Britam lost four high profile officials but little was said about their leaving. It’s only on Wednesday when Acorn Group — 25 per cent owned by Britam — announced that it had closed a Sh20 billion deal with Cytton Investment Management.

 In its announcement, Acorn Group unveiled the faces behind Cytton Investment. One of them is Mr Edwin Dande, who was the chief executive officer at Britam’s asset management unit, presiding over a portfolio that currently stands at Sh36.3 billion.

The 38-year old Dande had been at the helm of British-American Asset Managers (BAAM) since 2011.

Mr Dande’s portfolio was no doubt at the heart of Britam’s financial strategy, at least going by the heavy investment the firm was making in property and real estate to reduce reliance on fixed income investments and stocks.

Then came August 31 and it was announced that Mr Dande was leaving Britam to pursue personal interests.

Private equity firm

Little did it occur to many that the   interests involved setting up a private equity firm, following  in the steps of his peers who had previously  left their plum posts to set up their own private equity companies.

Mr Dande left with three senior staff from Britam, with whom he set up Cytonn Investment Management, a property–focused equity fund.

The other three were  Patricia Wanjama (formerly head of legal), Shiv Arora (formerly investment analyst)  and Elizabeth Nkuku (formerly  portfolio manager).

After Britam lost the real estate deal, investors were quick to react with the firm’s share losing 8.5 per cent. Last Friday the shed off 10 per cent of its value.

“Britam stands to lose its grip in the lucrative property market… the decision by Acorn Group to work with Cytonn Investments will see Britam lose deals worth Sh40 billion,” Old Mutual Securities Research said in a note.

Britam is, however, not alone in losing talent to a new crop of young restless people who, having tasted big money, are turning corporates upside down by moving out to set up their own private equity funds to scout for deals.

Private equity is still a relatively new development on the Kenya’s financial scene but it has been growing in recent years as investors chase higher returns from economies enjoying strong growth.

 Mr Dande says Cytonn has set its eyes  on the booming property market in which it seeks to mobilise resources from investors and pump it into strategic real estate projects.

“There is no shortage of capital; the world is awash with capital looking for where it can generate handsome returns,” said Mr Dande. “Private Equity is an opportunity to get access to above-average returns for our investors before they are in the listed markets.”

Rapid developments

Analysts believe that Kenya’s economy presents a great opportunity for money looking for handsome returns due to rapid developments in different sectors.

“There is immense potential for PE funds in the country and I am not amazed at the pace they are growing,” said Mr Eric Munywoki, an Old Mutual analyst.

He attributes the growth to a widening of the gap in financial markets left by commercial banks who have limited their lending to corporates to shield themselves from loan defaults associated with small businesses.

Private equity firms are seen to play a critical resource-allocation role by raising money from high net-worth retail investors or institutional entities and pumping it in the most promising sectors of the economy.

They generally make revenues from charging a management fee due to the immense professional expertise they bring to the firms they invest in.

They also get carry interest, a form of a bonus that is earned should the private equity firm achieve the rate of return set by the investors.

Because of their long-term investment outlook, PEs may buy stakes in companies and hold on to it for at least seven years before they harvest their profits through listing or sale to other PEs or investors and hop on to the next line of investment.

To investors, PEs offers a chance to diversify the basket of investments, away from publicly traded shares and government securities.

“There is a lot of money chasing little liquidity in the stock market and PEs definitely offer an attractive vehicle,” argued Mr Munywoki.

 The 2014 edition of the Private Equity Confidence Survey by consulting firm Deloitte indicates that competition is growing in Kenya’s private equity industry and fund managers are looking at the small and medium-sized enterprises (SMEs) for new deals.

The move by the four former Britam  staff adds to a growing list of executives who have opted out of plum jobs to set up PE funds. One of them is Mr David Owino, 40, a former director of private equity at Centum Investment.

Mr Owino, who quit the listed investment firm last year in October, is now a partner at Ascent Capital, a private equity (PE) fund that targets investment opportunities in Kenya, Uganda and Ethiopia.

Raised Sh4.4 billion

Ascent Capital in July this year raised Sh4.4 billion, dubbed Ascent Rift Valley Fund, that was backed by private and institutional investors from Kenya and abroad, including Kenyan pension funds.

Mr Luke Kinoti, who was the country director at international microfinance organisation ECLOF, co-founded Fusion Capital in 2006 that is focused on businesses across Kenya, Uganda, Kigali and Tanzania.

In July, Fusion Capital pumped Sh125 million into a 40 per cent stake in Xtra Publishing Ltd, publishers of a free Nairobi evening daily newspaper, X News.

Caterer San Valencia, Nakuru-based Grand Park Estates, Zetech College and Ushindi Feeds are other firms that Fusion Capital has invested in.

In 2008, Tony Wainaina quit TransCentury as chief executive officer and co-founded Fanisi Capital with Ayisi Makatiani, targeting firms in agriculture, healthcare, energy, retail and consumer sectors.

Late 2013, for instance, Fanisi Capital sunk Sh262 million for a stake in local retail pharmacy chain Haltons Ltd. This marked its debut in Kenya’s pharmaceutical sector.

The firm had also pumped Sh251 million in a Rwandese agribusiness company ProDev Group Holdings in mid 2013 through a mix of equity and debt.

Other investments include the Hillcrest Group of Schools, which it purchased in 2011, and Paystream Ltd, a company that sells point-of-sale terminals, where it put about Sh87 million in 2010.

Mr Paul Kavuma was previously a director and head of East Africa private equity at Actis before leaving in 2009 to investment fund Catalyst Principal.

Some of its notable investments early in the year are in EFFCO, a Tanzanian logistics and heavy equipment renting company. The value of the investment was not disclosed. It also bought a stake in Mimosa Pharmacy last month.