“Everyone wants to live on top of the mountain, but all the happiness and growth occurs while you’re climbing it,” says US writer and TV personality, Andy Rooney. The team at Mergence can relate to this statement – the last few days have been challenging.
When Masimo Magerman and Izak Petersen launched the Mergence Group, a black-owned boutique financial services group in 2004, they had no idea they would spend the next decade utterly consumed by the process of building the business. “It’s like caring for a baby, it took all of our attention, and more,” recalls Magerman, who is MD of the group.
It took them two years and plenty of personal sacrifices to get a client. “It was harder than I ever imagined, but we just put our heads down and focused on what we were doing,” he says. Their first client, the Municipal Employees Pension Fund, promptly put Mergence into an incubation programme. “By that stage Izak and I had considerable experience, but we realised we needed to build a track record in the industry, so we participated in the programme.”
It took time – and several more incubation programmes – to build the trust necessary to win recurring business from institutions and pension funds.
Mergence is now a diversified financial services group with a capability across listed and unlisted investments, which distinguishes it from its peers.
Through its asset management subsidiary, Mergence Investment Managers, it looks after the retirement savings of many thousands of South Africans.
In the impact investing space, it was a pioneer, creating the first debt fund in the renewable energy sector in 2013. “Long before it became mainstream, we were incorporating environmental, social and governance criteria into our listed stock selection,” he says.
Another subsidiary, Mergence Africa Capital, is a derivative broking, structuring and advisory business that has executed transactions in excess of R250 billion on the exchange and over the counter. It has been rated within the derivative research and dealing categories of the Financial Mail Ranking the Analysts awards since 2014 and has a blue chip client base of asset managers and commercial banks. It performs end user broking services as well as interbank broking.
Mergence recently acquired a commodity finance subsidiary that specialises in trade financing solutions for the agricultural sector, with a focus on grain and oil seeds.
At a group level, Mergence has grown its assets under management at a compound rate of 30% a year since 2005 – with the steepest growth in recent years. The combined Mergence group now manages assets to a value of R43 billion and employs over 86 capable and experienced people. The target is R100 billion, which would place the group firmly among the bigger investment managers in the country.
Thus, it came as a surprise when Magerman began receiving calls from concerned clients last Friday. They had seen an article that described Mergence as one of several “completely unknown entities” who earned fees from the PIC “for a range of questionable and badly defined services.”
Considering some of the negative allegations about the PIC and its processes, these calls were alarming, he says.
This statement, he says, was contained in an article written by Magda Wierzycka, CEO of Sygnia Asset Managers, and carried in Business Day on February 6.
While the facts of the matter have been cleared up via direct correspondence between himself and Wierzycka, as well as the publication in question, Magerman believes the inaccuracy needs to be corrected in the industry.
“Fees that were earned from the PIC by two of our business units – Mergence Investment Managers (asset management services) and Mergence Africa Capital (transaction advisory and broking services) were combined erroneously.”
The PIC memo which is relied on for the article states that R110 million was paid in fees to “Mergence”, he explains. Given the context of the memo, which is to detail transaction advisory fees, it appears that these fees were all paid to Mergence Africa Capital.
Instead, fees paid to the two business units were incorrectly lumped together and compared with that earned by other firms (whose fees were not lumped together). The correct fee earned by Mergence Africa Capital for transaction advisory services between 2004 and 2017 is about R37 million, which translates to a fee scale of 0.05% to 0.25% depending on complexity, in line with market norms.
“We have had written confirmation of this from the PIC in this regard, but unfortunately this was not mentioned in the memo and thus creates the wrong impression.”
Both the PIC and Sygnia are clients of Mergence.
Brought to you by Mergence Investment Managers.