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Anchor Capital to expand offshore as generational wealth leaves SA

Peter Armitage, the founder and CEO of Anchor Capital. Photo: Supplied

Peter Armitage, the founder and CEO of Anchor Capital. Photo: Supplied

Published Sep 15, 2023


Anchor Capital is set to unveil its international expansion in coming weeks, Peter Armitage, the founder and CEO of Anchor Capital, revealed yesterday.

As generational wealth exits South Africa, which is a risk to the investment firm’s growth trajectory, Anchor Capital is securing its future. This as it has clients both locally and internationally.

Armitage, along with his investment team, yesterday in a round-table discussion with the media shared insights into the current investment landscape, in a wide-ranging conversation from commodities, South African woes such as logistics and the power crisis, to exciting AI and cybercrime tech stocks and the depressing fact of the drying up of listings on the JSE, among other trends.

Anchor Capital, while bringing home the bacon for its investment clients, shared that SA Inc. is staggering under a litany of woes, with investor capital shunning South African shores and as generational wealth eyes opportunities elsewhere with the implications of this being felt in the future.

Anchor said while wealth was fairly stable for now in South Africa, the generational wealth would be transferred overseas as kids of the wealthy were moving offshore, aka emigrating.

It noted some did come back.

However, currently, the Anchor team said this had not seen a massive impact on its business.

When one dealt with individual investors in the high net worth space, people who had already made their money (somebody in the 50- or 60-age range), if they were going to emigrate, they probably would have, Anchor said.

People immigrating were generally in the 25- to 35-age range, the team said, which meant they hadn’t made their money yet.

However, Anchor explained that a large proportion of its clients had externalised their wealth over the course of the past five to 15 years. Anchor looked after its wealthy clients' offshore money from South Africa.

“Live in the sun and invest in the shade” was an old saying applied here, Anchor said. Their clients were comfortable being in South Africa and being global investment citizens, while being physically in South Africa.

However, Anchor queried what would happen when its wealthy clients died and the children of those clients were established abroad.

In that scenario, the money was gone from South Africa. The firm highlighted that this was an issue for the investment industry because there was a natural drain if one’s investment client died.

Anchor explained that as an investment firm this was a problem that one would not be able to build a business relation with that next generation, meaning “that money's gone”.

To get around this, Armitage said, “From our business point of view, the next logical step is to have an international operation, which we might do in the next few weeks.”

That announcement will be made in due course, and Armitage was mum on further details.

JSE drying up

Anchor’s Deryck Janse van Rensburg said: “If you just look at the liquidity on the JSE, it’s got to be the lowest I’ve seen it. You have to strip out the Richemont, Prosus, Naspers and the dual-listed stocks and look at the raw liquidity of the JSE – it’s shot. Photo: Bloomberg

Armitage said: “One can really feel the effect of the lack of new money in South Africa. There are a lot of well-run, dynamic small companies in South Africa that are running on ridiculous valuations despite delivering good results,

“And then if you look at what happened to Transaction Capital, if there is a slight stink, or controversy, the ground just opens up beneath you. There is such a small margin for error when things go wrong,” he said.

Although there was room for more active management, it required money to come from somewhere to step away from those big index stocks. This did not seem to be happening in South Africa as money was going into alternative funds, Armitage said.

Deryck Janse van Rensburg said: “If you just look at the liquidity on the JSE, it’s got to be the lowest I’ve seen it. You have to strip out the Richemont, Prosus, Naspers and the dual-listed stocks and look at the raw liquidity of the JSE – it’s shot.

“Now, the theme, to be mindful of, is we’ve had probably one of the biggest delisting periods that we’ve ever had on the JSE for the last 18 months. And that theme continues. Why? Because it warrants being listed at a P:E (price to earnings) of less than four in some cases? You’re getting a lot of management buyouts and a lot of delistings,” he said.

However, Armitage chipped in, saying: “I think it’s slowed a fair bit in the very recent past and I think that's because of interest rates. If you want to delist, you're going to have to borrow money from the bank to pay for it. So I think the JSE is even being kind of artificially protected by interest rates at the moment. When interest rates come back down by 2% or 3%, there’s a lot of guys who have got their models and the spreadsheets to press the delisting button who are on hold at the moment. I think you will see a whole another wave starting (of delistings) if and when interest rates come down.”

On asking Armitage whether it was beneficial to list on the JSE in the current trading environment, he said: “There is not much point in listing with current valuations as raising capital is not a viable option. There are the normal benefits like publicity, credibility etc.”

Armitage, when asked if there was anything the JSE could do to halt the erosion, replied: “Not really. The JSE is and has been improving what it does – addressing costs and the hassle factor. The key issue is South Africa’s poor economic outlook and the JSE cannot change this.”

He also said that as an investment company Anchor was concerned about South Africa’s economic outlook.

“However, there are different asset classes and investment jurisdictions. The JSE is likely to constitute a smaller percentage of investor portfolios if current trends continue,” he added. “The JSE is dominated in every way (value, value traded etc.) by 10 to 15 large companies and this will continue to be the case.”