In its research report into Capitec released on Tuesday morning, Viceroy Research raised some concerns around Fairtree Capital and fund manager Jean Pierre Verster. Verster is also a non-executive director at Capitec.
“We note that one of Capitec’s independent directors and chairman of its audit committee, Jean Pierre Verster, may be too independent to the level of poor corporate governance,” Viceroy noted. “[He] is concurrently the portfolio manager of Fairtree Capital and has publicly marketed his big short bet on Steinhoff, which at the time indirectly held ~7.5% of Capitec through PSG. Legal opinion we have requested suggests that this is a major conflict of interest, regardless of the inherent flaws in Steinhoff.”
There is however no further detail to this legal opinion, nor does Viceroy reveal who expressed it. It is therefore difficult to know how much weight to attach to it.
The report also pointed out that three of Fairtree’s funds, not managed by Verster, have “extremely small” holdings in Capitec. This, they argued, was “a vote of no-confidence in Capitec’s valuation and future performance”.
Viceroy does not however explain how it reached this conclusion without consulting Fairtree or providing any further substance.
To clarify its position and that of Verster, Fairtree released a statement on Tuesday that points out that all of its senior portfolio managers have sole responsibility for their own funds. It is therefore incorrect to read anything into positions held in Capitec by funds not managed by Verster.
“Jean Pierre’s investment process and investment decision making is independent of the other investment teams within the larger Fairtree Capital group,” the company noted. “Jean Pierre is based in Johannesburg whilst the other equity portfolio management teams are located in the Western Cape.”
It went on to add that:
“As expressed in their fund positions, the portfolio managers of the Fairtree Equity Prescient Fund, Fairtree Flexible Balanced Prescient Fund and Fairtree Balanced Prescient Fund have constructive views on Capitec and PSG.”
As far as Verster’s conflict of interest is concerned, Fairtree made it clear that this had always been managed.
“By virtue of his position as non-executive director of Capitec Bank Holdings Ltd (“Capitec”), Jean Pierre has always been precluded from all investment research, investment decisions and any other related activities in respect of Capitec across Fairtree Capital,” the company said. “In terms of the mandates governing the Protea hedge funds that are managed by Jean Pierre, any publicly-traded Capitec instruments (both equity and debt) are specifically prohibited to be traded in these funds under his management.”
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