Alexander Forbes: A much better business now
Its main shareholders are already talking it up. Both Natalie Kolbe from Actis and Anthonie de Beer from Ethos - the private equity funds that control Alexander Forbes - have recently said it is a much better business now than when they took control of it in 2007.
Within the next two years, this consortium will need to find a buyer, as its own investors will want their money back. And the two choices are to sell to a trade buyer or to relist it on the JSE. Forbes is selling the last large noncore business Guardrisk. This is a cell-captive insurer - clients set up their own insurance companies by buying cells on the Guardrisk licence. Forbes CE Edward Kieswetter calls it a gem of a business.It has 59% of the cell-captive market.
But Kieswetter argues that there are few touch points between Guardrisk and the rest of the group. Several offers for the business have been received, and there is no doubt that insurers such as Mutual & Federal and Zurich might be keen buyers. Its sale would also be a relief to the private equity shareholders. It is thought that it would be sold for R1,5bn, enough to pay off all the group's senior debt. Kieswetter says the remaining businesses are core to the future of the company.
"Our heart is the institutional capability, as a top employee benefits consultant and administrator. And Investment Solutions, our multimanager, is critical to help our clients achieve the outcomes they need." Forbes is already the largest commercial retirement fund administrator in SA, and it is winning clients from Old Mutual, which has decided to stop administering standalone funds. Forbes has 900000 active members - and this is a 5% increase on 2012.
Its Investment Solutions business is also a mature player in the institutional market, with R238bn under management. It is larger than its three main competitors put together. And one of the keys to Investment Solutions' success is the distribution it enjoys from Alexander Forbes Financial Services: each business would be a lot less valuable without the other. Kieswetter says that in the long term growth will come from three areas - the public sector, the African operations and retail clients.
Forbes has appointed its first-ever head of retail, Lindi Dlamini, who was head of individual life business at Liberty Life. Her brief is to set up a much broader retail footprint for the group. So far Forbes has focused on the high net worth market through its financial planning consultants, who source clients from the top management of its client companies. It now plans to offer products suitable to more modestly paid members of their funds as well.
At the same time Investment Solutions is extending its retail distribution beyond the Alexander Forbes financial planners by setting up partnerships with selected independent financial advisers. The retail initiative explains why Kieswetter is determined to hold on to the Alexander Forbes Insurance business.
"We could sell Alexander Forbes Insurance tomorrow. We don't need it in our core institutional market. But we want to be able to design a holistic offering for our clients that looks after their protection and investment needs," says Kieswetter.
Group finance director Deon Viljoen stresses that Alexander Forbes Insurance does not add significant risk to shareholders as the majority of business (up to 90%) is reinsured, with catastrophe cover on top of that. This minimised its exposure to hailstorms in October. The group lost most of its African operations when it sold Risk Services to Marsh Africa last year. The reconstituted remainder, AfriNet, gets 80% of revenue fromNamibia and Botswana. There is scope as the fledgling pension markets in Nigeria and East Africa grow, and potentially also from the retail market as financial advisers are scarce in Africa.
Kieswetter has sharply reversed Forbes's ambitions to have large European operations. "I think no-one is going to do more business with us because we have an office in Croydon, UK."
Just two years before Kieswetter joined Forbes, the CE was based in London and most of the growth was expected from the developed world. It proved impossible to manage such a complex group. UK Risk Services was sold to the US broker Lockton in 2006.
Last October, Alexander Forbes Consultants & Actuaries UK was sold to the multinational risk manager Jardine Lloyd Thompson. Investment Solutions UK has also been sold, ending the group's ambitions to offer multimanagement to British clients - though Investment Solutions SA will still have a research office in London.
There doesn't seem to be much logic in keeping the remaining UK businesses. LCP, a rather stuffy old-school firm of actuaries, never allowed itself to become a distributor for the group. Kieswetter says LCP is for sale at the right price. The other UK business, Alexander Forbes Trustee Services, which helps wind up insolvent funds, could be sold without too much fuss.
What's left of Alexander Forbes in Sandton has an enviably low client turnover, though still a much too high staff turnover. If a business could be set up with Forbes alumni it would have about double the intellectual firepower of the current shop. But even the current business will be an attractive listing prospect, if it is fairly priced.