This sale property was Nedbank Gardens, a commercial property in Rosebank which was valued at R43 million, and sold in December 2008 by OMIGPI who acted within the scope of its mandate with OMLACSA and the appropriate investment committees (see background below).
OMIGPI sold the property for R98 million, even though it had received a higher offer (R120 million) from the owner of a competing mall which abuts the Rosebank Zone development. This decision was taken in a strategic attempt to maximize the overall value of OMLACSA policyholders’ total investment in the Rosebank area, which is estimated at approximately R850 million. To accept a bid that is not the highest, if it means another bidder’s development will have less of a negative impact on the existing property, is not uncommon in property transactions.
However, because a majority shareholding in Nedbank Gardens was later sold on to the owner of the adjacent mall, OMLACSA concluded that the sale process had in fact not achieved its strategic objective.
OMLACSA therefore requested OMIGPI to review this transaction in detail to determine if any remedial action should be taken, and what further steps should be taken to reduce the risk of a similar situation arising again.
Review and actions
OMIGPI accordingly briefed PricewaterhouseCoopers, as an independent audit firm, to conduct an in-depth review of this and other transactions dating back to 2007, and all relevant investment processes and controls.
The review has now been concluded. It has found that no member of OMIGPI’s staff was involved in a deliberate attempt to influence the investment decision for inappropriate purposes, or financial reward.
It also found that there were no material weaknesses in the OMIGPI control and governance framework. Nevertheless, control breakdowns had occurred in the execution of this transaction.
OMIGPI and OMLACSA have accepted all the review findings, and taken measures with respect to the control breakdowns, and accountability, in respect of the Nedbank Gardens transaction and going forward.
To ensure that Old Mutual's customers should suffer no prejudice in respect of this transaction, OMIGPI will pass a credit to policyholder funds invested in Nedbank Gardens for an amount that will be quantified by PricewaterhouseCoopers. In addition, appropriate disciplinary steps have been taken where necessary.
We wish to emphasise that as South Africa’s leading financial services provider we regret that the Nedbank Gardens sale transaction did not achieve its well-intentioned objective. We regard every transaction as an opportunity to review processes internally to ensure that we maintain the highest standards of good governance and best practices.
Background
As OMLACSA (Old Mutual Life Assurance Company South Africa), the life company, we invest assets on behalf of policyholders under various mandates with different asset management companies, including OMIGPI (Old Mutual Investment Group Property Investments). All mandates require the relevant asset managers to act in the long-term best interest of our policyholders at all times. There is an agreed governance process with the OMLACSA Board to deal with any potential conflicts of interests that may arise.
OMIGPI has an established company board of directors, a number of funds’ boards and investment committees that ensure it operates within clearly defined governance frameworks and within parameters defined by all its clients’ mandates. OMIGPI understands its responsibility as an asset manager and its leading principle is to act in the long-term best interest of clients and to treat them equitably.
