Things are looking bleak for members of retirement funds whose assets were administered by N-e-FG Administrators (Pty) Ltd, which the FSCA placed under statutory management in June. It is uncertain whether any of the estimated R470 million in assets will be recovered, according to the manager.
In a report to the FSCA, statutory manager Krishen Sukdev said N-e-FG’s business rescue practitioner has ascertained that the retirement fund assets held by N-e-FG on behalf of members were not invested according to the investment mandates but were invested “in high-risk assets outside the given mandates”.
The status and value of these assets “is unknown at this stage”, Sukdev said in his report, dated 29 September.
“Incorrect asset statements were continuously provided to members and stakeholders, effectively providing misleading information on where the assets were invested and the current values. In essence, N-e-FG Fund Management (Pty) Ltd provided investment advice contrary to the investment mandates, and N-e-FG Administrators (Pty) Ltd transferred monies to third parties who did not have investment mandates from either the retirement funds or insurance clients.
“Currently there is uncertainty in respect of the value of residual assets and their recoverability. There is therefore a very serious risk of a substantial and or total write-down of the assets,” Sukdev’s report said.
As a result of the uncertainty surrounding the asset values, the trustees have decided to halt all benefit payments to members.
The FSCA stripped N-e-FG Administrators and N-e-FG Fund Management of their FAIS licences in December last year. The Authority cited contraventions of the FAIS Act, the Fit and Proper Requirements, and the General Code of Conduct as the reasons for withdrawing their authorisation.
The entities’ licences were provisionally suspended in September last year. In the same month, N-e-FG commenced business rescue proceedings.
The FSCA appointed a statutory manager for N-e-FG in June, saying it was concerned about the retirement benefits administrator’s failure to manage the funds it administers responsibly.
Read: FSCA appoints statutory manager for N-e-FG Administrators
Uncertainty over asset values
On 31 July 2022, the total value of fund members’ liabilities was R470m, which takes into account the net member contributions of R344.74m and capital growth R125.26m, according to Sukdev’s report. However, he said this was the simulated value of liabilities and assets if the assets were invested according to the given mandates.
“Given the considerable uncertainty of the asset values, there is a high probability of a substantial or complete write-down of these assets. A complete write down would imply an investment loss of R470m. The fund managers would need to account for these monies, provide details of how they came to manage the assets in terms of contracts and mandates, show how these monies were managed including the investment processes utilised, show compliance with regulation 28, provide details of custodial arrangements, and demonstrate the current value of assets,” Sukdev said.
N-e-FG offered an endowment plan and a living annuity through Lion Life, which, according to the report, has laid criminal charges against N-e-FG. The report put the market value of these products at R2.73m and R110.8m, respectively.
Sukdev’s report names two entities to which, according to the business rescue practitioner, a “substantial” portion of the assets administered by N-e-FG were transferred “without the required mandates”. Moonstone has asked Sukdev for more details about these entities, because neither seems to have an online presence or a FAIS licence.
Recovery efforts
Sukdev said he was liaising with the business rescue practitioner, the umbrella funds and Lion Life to harmonise efforts to quantify the losses, embark on the recovery process and hold those responsible for the losses accountable. This could include professional indemnity claims, negligence claims and legal action.
“The FSCA is currently carrying out a desk-top review. Regrettably, there have been delays in providing the information to the FSCA. This situation is being monitored very carefully with a view to providing the requested information to the regulator as soon as possible,” the report said.
It said N-e-FG has enough money to run for four to six months and is owed about R3m in fees by clients.
Boutique Collective Investments (BCI), on whose platform N-e-FG ran three white-label unit trust funds, cancelled its agreement with N-e-FG in September last year once it became aware of the irregularities at N-e-FG. BCI now directly manages these funds, which have been renamed.
