NEW RESEARCH INVESTIGATES BEE TRUST MANAGEMENT & INVESTMENT OVER 10 YEARS
Finds substantial investment, that if well managed, could have significant impact on future of SA, particularly in most deprived areas
21 August 2018 – Johannesburg – New research released today by Intellidex, the finance research and consulting house, shows the charitable and community components of some of the 100 largest JSE companies’ empowerment deals have a net asset value of R37bn and to date have disbursed some R3.3bn in public benefit projects.
The research report interrogates the governance, trust and asset management, fund disbursement policies and beneficiary strategies. The report concludes that a trust’s operating model shapes its performance in each of these aspects.
Entitled Understanding Empowerment Endowments, the findings show nearly two thirds – 64% – of these trusts have been running for 10 years or more but 80% do not have an investment policy statement, which indicates that they do not have an explicit investment strategy for their assets.
The report, funded by Tshikululu Social Investments, covers 25 trusts created by some of the 100 largest companies on the JSE.
Graunt Kruger, Global Head of Strategy Research at Intellidex and a co-author of the study said: “This is the first report of its kind that delves into the detail of Black Economic Empowerment (BEE) foundations. We hope that this will serve as a platform for sharing knowledge between the BEE foundations, their sponsor companies, policy makers and other interested stakeholders. There is certainly a need for greater cooperation and knowledge sharing between these trusts and others as they examine the challenges highlighted in this report.”
Tracey Henry, CEO of Tshikululu Social Investments said: “Our study highlights how these trusts have evolved over time as they have matured and become more responsive to the changing needs of the country’s development challenges. These trusts are by no means the silver bullet to rid us of all social ills, but their track record shows that if they are strategic in their intent and well managed that they have, and can continue to make, an important contribution to the social impact investing landscape and most importantly the intended beneficiaries.”
The report’s main findings are:
- More than half of the foundations were registered between 2003 and 2005 with more than a third being registered in 2005 alone. Only one trust was launched before the BBBEE Act of 2003.
- Seventy six percent are perpetual trusts and will continue operating as long as they are able to generate income from their assets. Six out of the 25 trusts have a fixed life span.
- The sizes of boards varied considerably. The average number of board members was six, with least being two and the most 11.
- None of the trusts are fully operationally independent from their sponsor companies – even those whose deals have matured and are not restricted from selling their shares.
- Trusts are managed according to one of four models based on whether they have dedicated staff; the staff are co-located with sponsor company staff; they outsource key operations of the trust; and whether they have their own or shared office space.
- The largest salary bill, 67% of the total salary bill of all trusts in this study, is in the group that largely runs its own operations, and does not rely on the sponsor company. Five trusts in this category spend R26m a year on salaries alone.
- The net asset value of R37bn reflects like-for-like growth of about 31% from the value estimated by Intellidex in June 2017.
- Most of the BEE foundations in this report do not have appropriate policies and procedures for asset management or investment or finance committees to oversee risk management, governance and compliance.
- Most of the foundations hold investment portfolios that consist only of their sponsoring company’s shares, largely because they are still restricted from selling. This represents a highly inefficient investment strategy.
- Dividends are the lifeblood of all perpetual foundations. All the foundations studied were entitled to receive a portion of dividends – called a “trickle dividend” – accruing to their shareholding even before they have fully settled the debt obligations.
- The 25 trusts have collectively committed almost R4.5bn to funding projects to benefit their beneficiaries.
- Disbursement budgets have grown by 44% in 2018 from 2017.
- Trusts are focused on spending their endowments on disadvantaged groups in South Africa.
- Sixty seven percent of the spending was directed at a variety of education initiatives.
Intellidex is a leading research and consulting firm that specialises in capital markets and financial services. Its analysis is used by investors, stockbrokers, regulators, lawyers and companies looking to understand capital markets in Africa. Its market and strategy research is used by banks, fund managers, stock brokers, wealth managers and other financial service providers to better understand their market places.
www.intellidex.co.za | @Intellidex on both Twitter & Facebook.
Founded in 1998, Tshikululu Social Investments is South Africa’s most experienced manager and advisor of corporate foundations and development trusts. Working with clients, developmental agencies and other collaborative partners, Tshikululu’s core purpose is to achieve deep and sustainable change for a greater good that results in positive social impact. This is done through bespoke strategy design, hands-on programme management and tailored social investment solutions, enabling social investors to realise their goals in ways that benefit them and South Africa as a whole.
For more information contact:
- Graunt Kruger, Global Head of Strategy Research, Intellidex: +1 (617) 817-5304 or firstname.lastname@example.org; OR
- Nikki Griffiths, Chief Operating Officer, Tshikululu Social Investments: +27 82 304 8405
or email@example.com ; OR
- Jennifer Kann, Managing Director, Lingo Communications +27 83 455 3289 or firstname.lastname@example.org