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SA fund manager faces big losses in Herman Pretorius fallout

Two Mauritius-based funds, managed by a South African, have big stakes in BK One.

JOHANNESBURG – Two Mauritius-based funds, managed by a South African, face big losses as a result of the Herman Pretorius homicide. On July 26 Herman Pretorius shot dead his former business partner, Julian Williams, and then himself. It was later revealed that Pretorius had been operating a R3.1bn Ponzi scheme.

Williams was CEO of private-equity company Basileus Capital. He was also associated with JSE-listed BK One, which has its entire R200m portfolio invested in four Basileus-related companies. The homicide created problems for BK One, because Williams played a key role in its investments.

Already one of BK One’s four investments, Tor Construction, has been placed under provisional liquidation as a result of the shooting. BK One has since proposed an injection of various Basileus assets as part of a business rescue plan.

The biggest investor in BK One is a Mauritius-registered fund called Four Elements PCC.  It owns 50% of all BK One preference shares in issue. The second-biggest holder of BK One shares, with a 17% stake, is a fund called Two Seasons PCC, also registered in Mauritius. These investments would have cost about R135m but are likely worth much less today. Shares in BK One hardly ever trade so the last price of R9 a share is probably not a good indication of value. To give an indication of how little demand there is for BK One shares, the best price bid on Wednesday was just 11c per share.

According to Bloomberg fund descriptions, both Four Elements and Two Seasons are managed by South African fund manager Cobus Kellermann. Kellermann is also a director and fund manager at Ankh Analytic, itself a former investor in BK One. 

At February 29 this year, funds managed by Kellermann accounted for three quarters of all BK One shares in issue. The BK One annual report discloses that Four Elements held 50% of all preference shares. Four Seasons and Two Elements together held 67%; the Ankh Stable fund held 5% and the Ankh Prudential fund held 2%.

Last month Moneyweb reported that the two Ankh funds had sold their entire stakes in BK One on July 26, the same day that Julian Williams was shot. See: Funds’ lucky escape from Herman Pretorius fallout

Moneyweb noted that it was difficult to understand why a risky small cap like BK One formed such a large component of each Ankh fund. In each fund BK One comprised more than 5% of total assets. The funds are presented as sensible, low-to-medium risk investments suitable for retirement money. (Fact sheets for the Ankh Stable and Prudential funds can be downloaded here and here.)

Moneyweb’s many efforts to interview Kellermann have so far proven fruitless.

When Moneyweb first reported on the July 26 sale, the identity of the buyer of Ankh’s BK One shares was still a mystery. An update in the BK One share register has now identified this party as “Deutsche Bank International Limited A/C GSY Clients”.

This is the same entity that holds BK One shares on behalf of Four Elements and Two Seasons. Thus it seems likely that the buyer of the Ankh shares was either Four Elements, Two Seasons or a combination of the two funds.

It is possible that Kellermann simply transferred BK One shares from one set of clients to another.

Kellermann’s association with Basileus Capital began before BK One’s listing on December 8 2011.  BK One’s annual report discloses that Four Elements had lent Basileus company Avalloy R11.3m. This loan claim was later bought by BK One.

A Google search shows that Kellermann is associated with several local and foreign investment entities, including Ankh Analytic, Noble Private Portfolios, Swiss-based United Asset ManagementMBMG International and FSB-registered Clarus Asset Managers where he is CEO.

Kellermann’s résumé states that he has been in the investment industry since January 1998. He spent three years at Investec Asset Management as an analyst and portfolio manager of the Investec Value Fund. He was replaced as manager of the Value Fund by John Biccard. Kellermann graduated with a major in mathematical statistics from the University of Stellenbosch, and is a chartered financial analyst. 

TIMELINE
2001 Julian Williams launches Penryth (Proprietary) Limited, a specialist securities lending business.
2002 Penryth placed into liquidation, liquidation halted after Cadiz buys it out.
Williams and Herman Pretorius establish the Abante Group of companies, comprising: Abante Capital (Proprietary) Limited, specialising in statistical arbitrage trading strategies; Abante Virtus (Proprietary) Limited, a private-equity company focusing on black economic empowerment transactions in South Africa;Asset Liability Management (Proprietary) Limited, a specialist securities lending and third party treasury management company; and Abante Management (Proprietary) Limited, an administrative and fiduciary service company.
2003 Williams co-founds Wesizwe Platinum Limited, a platinum explorer and mine developer, with James Ngculu. Owns 41% of Abante
2004 Pretorius sets up Relative Value Arbitrage Fund (RVAF).
2005 SA Superalloys is registered, a special purpose vehicle designed to raise funding from venture capital investors.
2005 Wesizwe lists in December. It is advised by Abante Virtus.
2006 A consortium comprising the Abante Group and a management team engineered by Williams buys theAvalloy plant from African Rainbow Minerals and oversees Rolls Royce taking a 15% stake in the company. 
Williams becomes chairman of Avalloy, South Africa’s only superalloy producer.
Pretorius and brokers affiliated to him sell SA Superalloys pref shares to investors promising consistent returns of about 20% a year.
2007 In May Rolls Royce buys a 15% shareholding in Avalloy.
2008  In March Williams splits from Pretorius to start Basileus, which specialises in private-equity transactions and corporate advisory work with Ngculu.
Basileus acquires SA Superalloys from the Abante Group as part of the split up.
Basileus Capital takes over Abante’s stake in Avalloy, now holds 55%, through two separate investment vehicles, SA Superalloys and Basileus Investment Ventures 1 (Pty) Ltd.
2012 Dividends run dry in Superalloys, which sparks some unhappiness among investors.
It emerges that Pretorius put R40m of his own money to keep Superalloys paying dividends.
14 June Moneyweb reports that questions were raised by financial advisers about the returns generated by Pretorius’s RVAF. These returns have been in the region of 20% a year. 
5 July Moneyweb reports that a war of words erupts between Williams and Pretorius over the failure of unlisted public company SA Superalloys to pay dividends on its preference shares. Williams is a director of Superalloys.
25 July Williams’s e-mails Moneyweb’s Julius Cobbett saying that he is stunned at the abuse directed at him by clients of his former business partner Pretorius.
26 July Pretorius allegedly shoots his former business partner Williams dead in his Cape Town offices, then turns the gun on himself. 
30 July Pretorius’s investors in RVAF receive a letter from liquidator Lambertus Von Wielligh Bester from the firm Progressive Administration, stating that an application will be made on 31 July to place the RVAF Trust in to sequestration
30 July sequestration court papers claim investors placed R1.8bn with Pretorius’s RVAF.
30 July Von Wielligh Bester RVAF has 3 000 investors.
1 August Cape Town High Court grants an order to sequestrate Herman Pretorius’s scheme.
3 August 4i director and fund manager Michal Calitz admits to referring clients to Pretorius and investing his own money in the RVAF. 
3 August Master of the High Court appoints Rynette Pieters, Lambertus von Wielligh Bester and Barend Pieterse as joint curators of the RVAF. 
10 August FSB explains its apparent failure to act on Pretorius
14 August Basileus Capital and 11 related entities including SA Superalloys initiate business rescue proceedings. 
20 August Moneyweb reveals how audit firm PwC helped Pretorius to sell his fund. 
27 August Curators estimate that Herman Pretorius’s fund owes R3.1bn to about 3000 investors
27 August High Court places Tor Construction under provisional sequestration
4 September Broker Simon Morton apologises to clients for advising them to invest with Pretorius
12 September Moneyweb reveals how two funds in the Ankh stable sold their entire BK One stakes on the day Julian Williams was shot

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