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SNH investors lulled by Jooste and Wiese’s reputations

More shocking than Steinhoff’s fall from grace is analysts and portfolio managers’ failure to interrogate the company, according to Sygnia’s Magda Wierzycka.

NASTASSIA ARENDSE:  This is an interview Moneyweb’s Warren Thompson had with Magda Wierzycka from Sygnia on why this could just be the tip of the iceberg regarding Steinhoff and the allegations of earnings manipulation, uncontrolled acquisition sprees and tax fraud.

MAGDA WIERZYCKA:  Analysing industrial companies is not my basic day job, and it took me exactly half an hour to see that the structure of the company [Steinhoff] was designed to hide off-balance-sheet transactions, and the amount of debt they took on was extraordinary. The trend of industrial deal-making that happened could only have been designed to hide financial irregularities.

So it really didn’t take me a lot to look at this and say what I’m seeing is not standard operating procedure in terms of running a responsible corporate.

So if it takes me half an hour – and I had almost like another Net 1 moment – where you look at something and you go, this just doesn’t make any sense, then the question I have is if you’ve got professional analysts who speak to management, who look at balance sheets, who look at income statements, and are supposed to interrogate this, how come they did not pick up the fact that if something usually looks like a tiered wedding cake – as when I looked at Steinhoff group structure and the acquisitions – that’s exactly what it is. It’s a tiered wedding cake.

WARREN THOMPSON:  To be fair, though, I think many investors have obviously looked at the track record of Markus Jooste and Steinhoff and obviously Christo Wiese, and wouldn’t have suspected – given that they are so heavily invested in the company – that they would certainly on behalf of Markus Jooste deliberately conceal what was going on. Post hoc we’ve seen what’s come out and this obviously looks tainted. It’s not that easy to pick up or to even suspect when you have executives that are as heavily invested in the company as both Markus and Christo are.

MAGDA WIERZYCKA:  If you are a retail investor and just playing around with shares, and you don’t need access to information, yes, you can excuse that by virtue of saying Christo Wiese has a bit of a Midas touch, he a businessman in South Africa, and hence I will follow whatever he does. But when it comes to professional asset managers, their job is to be cynical, to be objective, to be questioning. So there is absolutely no excuse. If the reason we are invested in something is because the richest man in South Africa does so, then I’m not quite sure what I’m paying asset-management fees for. I always go back to this quote by Aristotle Onassis. It’s a quote which says behind every great fortune there is great small crime. That is what should actually guide every analyst and every portfolio manager in South Africa. I think some of this is coming true in more places than one.

But no, I don’t think that you should rely on [indications] of people as the basis for investment decision-making. It might be the basis why you look at the company and why you are attracted to companies – hence you will analyse them in detail. But that should hardly be the reason for investing in a stock.

NASTASSIA ARENDSE:  One of the other questions we should be asking is the number of chartered accountants that sit on that board. I’ve counted six. How six chartered accountants could have missed something as insane as this is shocking.

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