Financial services group 27four Holdings announced on Wednesday that it has entered into an agreement to buy 100% of Prescient Life Limited from Prescient Holdings. While the deal is still subject to regulatory approval and certain suspensive conditions, 27four expects it to be finalised by August 1.
In terms of the deal, Prescient clients and the group itself will still be able to make use of the life licence to offer pooled portfolios. Prescient will also continue to perform the administration through Prescient Fund Services.
Fatima Vawda, CEO of 27four says the deal puts the company firmly on a path to building a meaningful, diversified financial services firm. 27four already owns an asset manager, wealth management business, umbrella fund and collective investment scheme management company (manco), and a life licence adds significant scope to its growth ambitions.
This is particularly significant as 27four is a pioneering black-owned business in this space. As Vawda notes, it has been very challenging for black-owned companies to own the means of doing business in the financial services industry, and this is a significant step in breaking through those barriers.
“The normal vehicles that are used in the course of businesses we don’t own because they are too expensive, and when we started out we didn’t have the capital adequacy in order to have those vehicles,” she explains.
In the case of a multi-management asset manager, such as 27four, the law stipulates that there are only two ways in which a business can pool the investments of multiple clients. The first is through a collective investment scheme management company (manco), and the second is to have a life company licence.
“Both of these are incredibly expensive, and the adequacy requirements are very hard to meet,” says Vawda. “None of us had that kind of capital when we started up.”
While capital adequacy requirements are an important risk management mechanism, they do act as a barrier to entry in this industry. That is one of the reasons regulations make it possible for smaller asset managers to operate co-named funds on another company’s manco licence, or to use the life licence of a bigger player.
“When we started up we knocked on Prescient’s door and said we want to play in the multi-manager space, but we need a life company licence to offer pooled solutions to clients,” says Vawda. “We have been renting their life licence for ten years.”
Now, however, the company is taking a major step towards securing longer-term objectives.
“Having completed a decade of performance, having built our balance sheet, having built our client base and our brand, our exco decided that we now need to own the means of doing business,” says Vawda.
Fortuitously, at the same time 27four was making this decision, Prescient was having its own discussions about the future of its life business.
“We decided that from a strategic perspective we needed to reconsider the life business,” says Prescient Holdings CEO Willem Venter. “Our concern was that the return from the business didn’t meet our requirements from a return on equity perspective.”
The opportunity for both companies was obvious, since 27four was already the biggest client on the Prescient Life licence.
“We do business with 27four across various elements of our service offering, so it strategically made sense for us to sell the business once we became aware that they were interested in buying a licence,” Venter says. “Because of its business model, 27four is also in a better strategic position to run that business profitably.”
Since Prescient will continue to provide the administration, it will also retain an interest in the life company’s fortunes.
“It’s important for us that that business remains a successful business and grows,” Venter says. “We want access to a life company’s balance sheet, and we also want to maintain our good relationship with 27four.”
He adds that he expects no disruptions for the other asset managers making use of the licence.
“It is possible that one or two might ultimately decide that they don’t want to continue to do business with the life company due to change of ownership, but I think it’s fair to say that for the bulk of them it will be business as usual,” he says.
Daniel Acres, CEO of Prescient Life, adds that the deal has been discussed and explained to all of them.
“Because 27four is a multi-manager and some of those clients also act in a multi-manager capacity there is a potential conflict of interest, and that has been discussed with parties,” he notes. “But the vast majority of asset managers that use the licence have been very positive about the change.”
Vawda says that 27four now has all the building blocks it needs to build long term success.
“As a black enterprise, we need to own the means to do business, but we also want to demonstrate to clients that they can place confidence and trust in us,” she says. “Nothing we have achieved has been for short term gains. We want to demonstrate to the market that we are there for the long haul.”
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