Download - Wealth Creation Through Group Investments
2
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 20
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
4
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 20
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
5
1. Background • Value of wealth held by investment groups in Kenya
(savings & investments) is currently approx. KShs100 billion (USD1.1 billion) according to Kenya Association of Investment Groups…… and growing.
• One in every three adults in Kenya is a member of an investment group according to KAIG.
6
1. Background • Strong cultural impetus behind pooling funds as groups to
invest…strong fundamental affinity to save and invest. Very successful SACCO movement has been saving to borrow…
• Investment groups play a major role in wealth creation but the efforts are by and large very fragmented and very disorganised…creating wealth significantly below potential.
• To achieve the potential of becoming significantly greater wealth creators, investment groups must take a step back and address a number of fundamental issues and challenges.
7
• Hard work -‐ genuine commitment
• Dedicated management teams
• Strong governance structures
• Clear strategic plan
• Efficient decision making through delega<on to an IC that works closely with management for execu<on.
• Commitment to raising capital for inves<ng
• Strong deal pipeline-‐ Best deals brought to the group
How have successful investment groups done it?
8
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 20
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
9
2. Why invest as a group?
• Peer pressure works
• Committed contributions - difficult to withdraw
• Signed an agreement
• Capacity to raise more money & invest in bigger projects
• Combining several valuable skills
10
(What’s in it for Me?)
* Average annualised returns over the past 5 years(10 years for the NSE)
Average Gross Investment Values for Holding Periods of 1 to 15 years (contribuAons stop aBer year 5)
These figures are not adjusted for inflaAon
Individual-‐type returns group-‐type returns
2. Why invest as a Group?
monthly contribution 15,000 (all figures in KShs) annlzed Year return* 1 3 5 10 15
0.0% current account 180,000 540,000 900,000 900,000 900,000
1.6% savings account 181,607 553,873 938,544 1,018,691 1,105,682
4.6% fixed deposit account 184,549 580,065 1,013,619 1,275,180 1,604,236
7.5% 91 day T-Bill 187,532 607,705 1,096,116 1,596,782 2,326,136
9.8% Stockmarket (NSE) 197,640 652,924 1,201,817 2,018,158 3,320,974
40.0% Investment Holdco 252,000 1,098,720 2,758,291 15,064,610 81,250,944
Case study 1: Unathi Investment Ltd. • Unathi (“God is with us” in Xhosa”) was formed in 2007 when 1 lady came up
with the idea of bringing a group of women together to save and invest for re<rement. By the end of 2007, 19 women in their early 30s had signed up to became shareholders. KES1.4 million was raised by the end of 2007.
• Monthly contribu<ons started at KES 10,000 (USD 150) and by the end of the first year -‐ 2007, total contribu<ons, which were all capitalised, stood at KES 1,405,000.
• From 2007 to 2010, the value of their contribu<ons exceeded the value of their por[olio -‐ making a loss on their investments.
• In 2010 they carried out their first detailed strategic planning workshop. By the end of 2011, the value of the por[olio (KES16.6 million)exceeded the value of contribu<ons (KES13.5 million) -‐ making a posi<ve return on their investments.
1. Case studies
11
• Invite like / business-‐minded individuals to join the group: Not everyone in the group needs to know each other from the outset. This approach improves the probability of a business rather than social agenda being adopted from the very beginning.
• Learn from failure, and move on: A`er the failed investment aaempt that lost them a substan<al amount of money Unathi learnt the meaning of being well prepared to borrow from banks.
• Develop and implement a strategic plan: Unathi’s first comprehensive strategic plan was developed in early 2010. The group started implemen<ng the key result areas almost immediately and within 24 months, had achieved a por[olio value greater than the total contribu<on levels, for the first <me in their history.
• Professionalise management: Disengaging the shareholders from the direct management and administra<on func<ons of the group was key to ini<a<ng Unathi’s transforma<on between 2010 and 2011.
Learnings from the Unathi case study 1. Case studies
12
• Maintain a strong savings culture: Most members have maintained monthly contribu<ons from the beginning -‐ even in the difficult years when the viability of Unathi as a long-‐term investment vehicle was uncertain.
• Corporate Governance: Over they years governance strengthened gradually, and in 2010 a board of directors was cons<tuted with terms of reference for the board and for the board commiaees.
• Leverage your capital base: Even a`er a failed first aaempt to borrow investment capital in 2009, Unathi persevered and succeeded in securing a loan facility in 2011 for the purchase of 3 proper<es. Leverage (borrowing money)was key to growing their por[olio value by almost 150% between 2010 and 2011.
Learnings from the Unathi case study 1. Case studies
13
Case study 2: • Trans-‐Century is recognised as probably the most successful investment
group in East and Central Africa.
• Origins and development over its 14-‐year history clearly demonstrate the real poten<al of home-‐grown investment groups to transform into a large, regional, and profitable investment holding company.
• At the beginning, a sugges<on was made to form a group whose collec<ve skills and networks could be leveraged to do what would be far more difficult for an individual to achieve.
• 50 prospec<ve members (inclusive of the original 7) were invited to invest KES500,000 each; 29 accepted -‐ ini<al capital of KES24 million was raised. By December 31, 2011 the total assets of the company stood at KES21.7 billion.
1. Case studies
14
• Professionalise management: A high quality full-‐<me compe<<vely recruited management team was recruited in line with the 2006 strategic plan.
• Devote substanAal quality Ame to managing your investment group: Before engaging full-‐<me management, Trans-‐Century’s chairman and vice-‐chairman devoted over 50 percent of their <me to managing the affairs of the investment group. High quality service providers—in accountancy, audit, tax, company secretarial services, legal maaers and corporate finance—were engaged from the beginning.
• Develop and implement a strategic plan: Ever since Trans-‐ Century began to develop strategic plans, the implementa<on of these plans has been closely monitored and the plan has been reviewed every 2-‐3 years.
Learnings from the Trans-Century case study 1. Case studies
15
• Build long-‐term value: Trans-‐Century has consistently pursued a strategy of buying, driving value and holding strategic investments.
• Think big: Trans-‐Century has pursued an aggressive investment expansion programme across the African con<nent. They evolved into a public company and eventually listed on the Nairobi Stock Exchange.
• Learn from failure: A`er par<cipa<ng as a minority investor with minimal rights in the Castle Brewing Kenya Ltd. venture that folded a`er only 4 years, Trans-‐Century decided to focus on acquiring majority stakes in companies they could acquire full informa<on on before deciding to invest, and control upon investment.
• Bring the best deals to the group: There is an unwriaen agreement among the founder shareholders to bring aarac<ve investment opportuni<es to the aaen<on of the group.
Learnings from the Trans-Century case study 1. Case studies
16
• Leverage your capital base: Trans-‐Century pursued an investment funding approach that relied quite heavily on money borrowed from banks. This enabled them to achieve a significantly larger investment por[olio than they would have, without dilu<ng their shareholdings or commijng addi<onal capital -‐ which would have been the case if they had relied only on share capital.
• Cash is king: It is important to focus on cash genera<on (e.g. East African Cables is one of the NSE’s best dividend payers in history). Too many Investment groups <e up their capital in non income genera<ng assets (eg. undeveloped plots of land) for too long.
• DiversificaAon: Trans-‐Century has diversified geographically (now in over 10 countries), by sector (power, transport and engineering) and by customer base and product.
Learnings from the Trans-Century case study 1. Case studies
17
Trans-Century at a glance Controlling interest
Minority stake
Pende Electrical, Zambia
Cableries do Congo, SPRL
18
19
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 20
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
20
3. Investment Group Principles
• Commitment (financial & non-financial)
• Vision
• Governance
• Trust
21
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 20
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
22
4. Critical Failure Factors
1. Not shifting your mindset: short-term not long-term; small not big
2. Not having a documented purpose and vision (strategic plan)
3. Letting all the members, not a smaller board drive the group: Not separating ownership from management
4. Not professionalizing - management & execution of investments. Relying on office-bearers to do everything
23
5. Only save/contribute what you can afford to lose
6. Not respecting the distinction between business and friendship
7. Not formalizing / legalizing the relationship
– Shareholders agreement – Auditor, company secretary
(submit annual returns) – Issue share certificates
8. Weak leadership
4. Critical Failure Factors
24
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 12
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
25
5. Shifting Mind-Sets From To
[Social] Investment clubs & merry go rounds
[Business] Investment holding companies
Small
Big
Why?
Why not?
Short-term get-rich-quick
Long-term wealth creation
Foreign direct investment
Local direct investment
26
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 12
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
27
6. Creating Savings • Saving to borrow (for short-term) exists - SACCOs.
• Must develop a culture of saving to invest (for long-term)
• Change mind-set from of savings as “spare cash” to “paying a bill, school fees”
• Your family and you & are the most important person to you - so pay yourself first
• Develop the habit of saving - repetition and sacrifice
• But results must be seen along the way (performing investments) to encourage continued saving
28
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 12
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
29
8. Administration & Management of the Investment Group
MUST DEVELOP A STRATEGIC / INVESTMENT
PLAN FIRST!!!!
Before engaging or outsourcing full time management and administration, the investment group……
30
Why do we need Full Time Administration & Management?
q Not-‐‑For-‐‑Profit social venture or a For-‐‑Profit business
venture -‐‑ DECIDE!!
q Every member has a full-‐‑time paying job
q Spare Time Commitment = Spare Change Returns
q No company has every succeeded with part-‐‑time management
8. Administration & Management of the Investment Group
31
A. Administration ……of Investment Groups
i. Convening and recording meetings ii. Record keeping iii. Accounting, banking, filing returns iv. Transacting with professional service
providers v. Communication
8. Administration & Management of the Investment Group
32
B. Management ……of Investment Groups
i. Investment portfolio management ii. Sourcing good quality investments iii. Performing high level due diligence iv. Professional service providers v. Preparation for board/commiOee meetings vi. Positioning the Group as a preferred
investment partner vii. Implementing your strategic plan viii. Communication
8. Administration & Management of the Investment Group
33
C. Execution ……of Investment Transactions
i. Formalizing your decision to invest ii. Funding the investment: equity & debt iii. Documentation confirming final investment iv. Professional service providers v. Investment closure checklist vi. Legal considerations & risks vii. The property investment execution process
8. Administration & Management of the Investment Group
34
Table of Contents
1. Background 5 2. Why invest as a group? 9
3. Investment group principles 12
4. Critical failure factors 22 5. Shifting mind-sets 25
6. Creating savings to invest 27 7. Administration & management 29
8. Transformation: Beginning the journey 36
page
35
Early
Mid -‐ Level
Mature
Starter Toolkit
FormaAon &
Structuring
1 3 4 6 7 9 12 Investment
Planning AdministraAon & Management Own Management
Level 1
Level 2
Level 3
Starter Toolkit
Designing the appropriate structure for your group based on your objec<ves
F & R
Focuses on iden<fying effec<ve investment strategies according to the group’s risk appe<te and financial goals.
Investment Planning
Affairs of your Investment Group placed in the hands of a full-‐<me, dedicated team of professionals
A & M
2 5 8 10 11
Designed to establish an investment group with a strong, well-‐structured founda<on
Investment Group Development Path
Port
folio
siz
e
36
9. Transformation: Beginning the Journey
Establishment FormaAon & Structuring
Strategic Planning
AdministraAon & Management
Stage 1: Stage 2: Stage 3: Stage 4:
• There are no shortcuts - follow the process
• Invest heavily in the process - the outcome will take care of itself