‘It’s about having niche investment products for institutional and ordinary investors.’
Investors and companies both have plenty to worry about in today’s markets.
Between the UK’s ongoing Brexit talks, rising interest rates globally, US President Donald Trump’s unpredictable actions, and political and economic crises in South Africa, there is no shortage of global and domestic issues to contend with.
Such uncertainty in the market can produce two outcomes for ordinary investors — make them nervous about investing money, or shock-proof their investment portfolios through safe and predictable asset classes.
Meanwhile for companies, heightened uncertainty can make it difficult for them to attract and retain investors during their capital raising efforts. This is a trend that Terence Gregory, CEO of niche financial services firm Ecsponent, has seen.
Gregory says constant policy changes on land reform by the South African government and over-regulation of markets and capital allocation by financial regulators usually puts investors off.
“The biggest risk for the investor centres on regulation and regulatory changes,” he says. “The rhetoric on policy changes such as expropriation of land without compensation also makes industries nervous. Our job is to find opportunities, and invest and disinvest in them at the right time.”
Gregory is close to the investment community as Ecsponent operates a business division that comprises investment services, which is the group’s capital-raising arm. He says Ecsponent is riding out the market challenges by offering niche investment products that offer consistent returns to retail and institutional investors.
Among the primary products that Ecsponent has brought to the market are preference share products that fund its ongoing expansion. Unlike Ecsponent ordinary shares that are listed on the JSE, the preference shares provide investors with fixed returns on a capital growth or monthly dividend basis. Through its preference shares (also listed on the JSE) Ecsponent has raised more than R1.6 billion since September 2014.
Gregory says Ecsponent’s ability to raise cash reflects the agility of its preference share products.
“It services the requirements of a niche market that we have targeted. It is a market that has disposable income and chooses to invest that money in preference shares in a lump sum form. It’s not about deducting R1 000 every month from someone’s bank account.”
The preference shares product is similar to investing in a fixed deposit bank account, which gains interest over a period of time. But investors get regular dividends from Ecsponent. “We try to offer a better return, which ensures that the investor remains invested with us,” says Gregory.
One of the drawcards of the preference share products is that Ecsponent does not charge fees such as management or performance fees, which can have a big impact on returns especially when financial markets underperform.
Fees only apply when external brokers are involved and refer investors to participate in the preference share scheme.
“The broker can negotiate additional fees but we only charge client fees of 0.25% per annum on some of our preference share classes and on some there are no fees,” says Gregory. “We also warrant 100% investment allocation. For example, if you invest a R100 in preference shares, you get a R100 investment. So, your return is based on that R100 investment and not the investment post fees.”
As part of Ecsponent’s capital raising initiative, the company also attracts institutional debt funding for its operations and has received approval to introduce a bond programme to the market.
Ecsponent’s preference share programme is complemented by its ability to raise dollar-denominated funding that is accessed overseas. To date (15 months to end-June 2018), Ecsponent has raised US$15 million (R205 million at the time of writing) in international institutional funding, which has been deployed in the company’s operations outside South Africa, such as Zambia, Botswana and Swaziland.
The company is also able to raise funds through a linked-loan unit programme and an interest rate-based bond programme in Botswana and Swaziland. “Both are targeted at the institutional and retail market, where people are looking for monthly or capital growth returns.” In Swaziland, Ecsponent holds a collective investment scheme licence, which creates opportunities for investment in a mix of Swazi and offshore securities.
Within Ecsponent’s investment services division is a wealth advisory unit, through which it is furthering its offering of investment and insurance products.
In South Africa, the unit already offers investment and insurance products for the retail market – including umbrella funds, preservation funds, life products, annuities, and endowments.