Finweek UK 20 March 2014

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20 March 2014
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INFUND
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A NEW WAY TO
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BIG GUYS
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INVESTMENT
INSIGHTS FROM
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ASSET
MANAGERS
FINFUND
What will
Standard Bank

do with all that
CASH?
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LISTED PROPERTY
CORONATION SMALLER
COMPANIES FUND
MAKE
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MONEY. POWER.
Entrepreneur Chris Bischo
P10
HOW TO MAKE A
MILLION IN FIVE
YEARS OR LESS
Cover story: Kristia van Heerden
Cover concept: Zandri van Zyl
Cover story layout: Beku Mbotoli
On the cover: Chris Bischoff
Photographer: Dino Codevilla
Make-up: Rouge SA

P43
Finfund
Your quarterly
review of SA funds
P8
The rise of the
supercar market
P24
Petmin now
seeking growth
closer to home
4 Feedback From our readers
6 Trending N
ews preview
8
Context The rise of the supercar market
10 Cover How to make a million in five years or less
18 Insight Emerging vs developed market challenges
22 Investment Listed property consolidation excites
24 investors; Petmin now seeking growth closer to home
25 Index-linked investments: The art of passive punting
28 What happens when mines die
30
Simon Says Standard Bank, Southern Ocean, Clover
32 Small Cap Petmin on the rise
33
Fund Focus Coronation Smaller Companies Fund
34
Invest DIY How to manage investment risk
35

House View Punts
36
Start-ups In the mind of Sylvia Gruber
38 Technology Tested: Slack
39 Time for David to cuddle up to Goliath
40 Life The week that was in SA sport
45 Finfund Set for another reasonable year
46 Slightly improved domestic outlook on the cards
48 Caught up in an emerging-market storm
49 Corporate investors target fixed income funds to
‘sweat’ their cash
50 The active versus passive debate
52 Predictability: a highly sought-after commodity for
i
nvestors
53 Don’t overreact!
54 Understand your Allan Gray Stable Fund investment
55 Making sensible use of ongoing opportunities
55 Sasfin Premier Logistics lifts its game
60 Directors & Dividends Dea
lings and payouts
62 In Brief Crossword
P36
In the mind of
Sylvia Gruber
FEEDBACK
4 FINWEEK 20 MARCH 2014
Feedback
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THIS WEEK’S
CONTRIBUTORS
Kelly Berold

Simon Brown

Simon Brown heads justonelap.com, a free resource of

financial information and investment education.

Blair Burmeister
blairb@finweek.co.za
Warren Dick

Simon Dingle
simond@finweek.co.za
Jessica Hubbard
jessicah@finweek.co.za
Graeme Joe

Tandisizwe Mahlutshana
tandisizwem@finweek.co.za
David McKay

Garth Theunissen

Kristia van Heerden
kristiav@finweek.co.za
For more
information,
visit
finweek.com
Acting editor Willem Kempen
responds:
With the type of information in ques-
tio
n readily available elsewhere much
sooner than Finweek can publish it, we

decided to rather use the space to give
readers more of the type of content
that we excel at. We’d love to hear what
other readers think as well.
COMPANIES & INVESTMENTS
F
ar from being a high-brow
investor, my investment deci-
sions are based on a single con-
cern: how much money can I
make from as s mall a n invest ment as p os-
sible? In Finweek terms, I’m the Little
Leagues. In the 16 Janua ry edition, I
mentioned that fees are one of the major
concerns when investing. I’m not alone in
my dread of fees. Financ ial advisers con-
stantly remind our readers to keep a c lose
eye on the costing struct ure of products
before investing.
As an investor of my own mone y
(thankfully only my own) I have to admit
to a deg ree of re luctanc e when inv estiga t-
ing fees. It’s just such a drag. If you can
actually get to the literature on product
fees, it’s so full of jargon that a layperson
can only understand it with much ef fort.
Finweek reader Irene Botha can relate
to my frustr ation and asked me to do
Top40 ETFs:
All things aren’t equal

report card, only inste ad of subjects, you
have a group of very big compan ies. An
index is not a product, just a report, so you
can’t buy it. That’s where ETFs come in.
An ETF is in its essence a col lection of
shares that track a spec ific index. If, for
example, you wanted to invest in the sweet
chilli sauce s ector, you would buy an ETF
that consists of all the sweet c hilli sauce
companies – one for each company. The
ETF is therefore the product th at tracks
the index. (To save you some time, I should
tell you that there’s no ETF in South A f-
rica that tracks sweet chilli sauce.) You can
buy ETF products from va rious financial
service prov iders and online pl atforms.
Many people (myself included) star t their
investment portfolio by investing in a
Top40 ETF, but sadly it’s not free. Before
I choose an ETF produc t, I have to com-
pare the costs. It’s a lot like buying eggs,
actually.
some digging into the fees of various
products. I’m going to do just that, work-
ing on the assumption that you invest
directly and not th rough a broker. First, I
need to explain three concepts that will
help us understand what I’m on about,
namely indices, ETFs and the total
expense ratio (TER).

For the sake of comparing apples with
apples, we have to make sure that we’re
comparing the fees of like products. For
that reason, I’m going to look at the fees
involved in Top40 exchange-traded funds
(ETFs). H owever, to underst and what an
ETF is, we have to understand what an
index is. See how this is al ready getting
out of hand?
An index is a way for us to see what the
market is up to. It tracks the performance
of certain sectors of the ma rket (or the
market as a whole) to see if the sector is
making or losing money. Think of it as a
26

FINWEEK 13 FEBRUARY 2014
Gallo Images/Thinkstock
EDITORIAL ACTING EDITOR WILLEM KEMPEN DEPUTY EDITOR TANDISIZWE MAHLUTSHANA
MANAGING EDITOR NICOLE BOUCKAERT JOURNALISTS AND CONTRIBUTORS SIMON BROWN,
SIMON DINGLE, GLENDA WILLIAMS, JESSICA HUBBARD, DAVID MCKAY, BRUCE WHITFIELD,
KRISTIA VAN HEERDEN, GLENDA WILLIAMS, DANIELLE GARRETT, BLAIR BURMEISTER,
WARREN DICK SUB-EDITORS STEFANIE MULLER, JUSTINE OLIVIER OFFICE MANAGER
THATO MAROLEN LAYOUT ARTISTS BEKU MBOTOLI, TSHEBETSO DITABO, ZANDRI VAN ZYL
GENERAL MANAGER CHARLENE BEUKES PUBLISHER LEE-ANNE COOSNER PROJECT MANAGER
DEIRDRE MCDONALD CEO: MEDIA24 MAGAZINES JOHN RELIHAN CFO: MEDIA24 MAGAZINES
RAJ LALBAHADUR ADVERTISING SALES AND SOLUTIONS SALES DIRECTOR CRAIG NICHOLSON
011-322-0731 BUSINESS MANAGER (KZN) EUGENE MARAIS 031-566-4178 BUSINESS MANAGER
(DIGITAL) TERANCE WINSON 021-443-9418 NATIONAL SALES MANAGER WEATHERTON NYAMBEU
011-217-3185 CIRCULATION SALES & SOLUTIONS CIRCULATION MANAGER ARMAND KASSELMAN

021-443-9975 SUBSCRIBER ENQUIRIES ELMARIE EYGELAAR 021-443-9828
CHEAPER ETFS?
Great article about the Top40 ETFs (Fin-
week, 13 February issue)! I have a question
related to costs: if I were to
go the route of using a bro-
ker instead of buying an ETF
through one of the providers
I would obviously incur bro-
kerage as a one-off cost. Sub-
sequently, I would only incur
annual charges related to the
TER (total expense ratio) but
not the annual platform fee.
This would amount to a saving
of 0.65% per annum if I use the
Satrix platform. Am I correct
in this? I guess the only downside in going
this route is that if you buy and sell regu-
larly, then brokerage costs would be much
higher than the 0.1% transaction charge
Satrix would charge?
Michael Gers
Finweek journalist Kristia van
Heerden responds:
While you are correct in assuming that
you will be saving on a platform fee,
it’s important to keep in mind that bro-
kerage fees are usually higher than the
brokerage fees incurred on an ETF

platform. Having said that, if you aren’t
planning on selling often and your ETF
investments get to a certain amount
(R100 000 or more), you could save quite
a bit by transferring the balance of your
ETF to a broker to save on
the annual platform fee. In
fact, my personal financial
adviser told me to do just
that. It’s very important to
compare apples with ap-
ples, so take time to com-
pare brokerage fees and
different platforms. Ask
yourself as many “what
if” questions as you can
think of and try to figure
out how different sce-
narios would impact the fees you incur.
Once you’ve done all your research, run
it by a financial adviser or a clever friend
to make sure that your logic pans out be-
fore making a decision.
LET US KNOW
There used to be a regular page with share
prices and other useful information on the
second and third pages from the back.
Nowadays, I almost never see that, and I
miss them because they used to provide a
great summary of the market after all the

tips and ideas. Don’t you want to bring it
back? How often can we expect it?
Herman Perry
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6 FINWEEK 20 MARCH 2014
THERE’S BEEN A LOT
of talk over the
last couple of years about what the
workforce of tomorrow will look like.
Business today is a competitive place
where the only constant is change.
In the 2020: The New World of Work
report, workforce solutions provider
Kelly Services explains how futurists
have focused, perhaps arbitrarily, on the
year 2020, plastering across the Internet
thoughts and ideas about how every-
one’s concept of a normal day of work
will be shattered in just a few short years.
But many of these changes are hap-
pening already, and by 2020, companies

that fail to embrace some very funda-
mental ways in which the global work-
force is transforming will fall behind the
competition.
“Making sure that you understand
future trends will ensure that you can
adapt and therefore grow your busi-
ness steadily, rather than run the risk of
becoming irrelevant,” says Ravi Goven-
der, head of small enterprises at Stand-
ard Bank.
He explains that entrepreneurs tend
to get caught up in the day-to-day
operational trap of chasing deadlines
and taking responsibility for multiple
functions within the business, however,
he thinks that they need to pay more
attention to preparing themselves for
change instead.
“Essentially, you need to look at
events differently and proactively navi-
gate your next challenge. Where most
people see disruption and fight against
change, you must see opportunity and
embrace what change has to offer,” says
Govender.
“To prepare effectively, you must
identify which events have the great-
est potential to disrupt it. You also need
to consider which sources to consult to

stay ahead of the curve. Most important-
ly, you should have a long-term view of
where you want your business to be in,
say, five years,” he says.
One of the major trends impacting
businesses is technology. New processes
and products are constantly being intro-
duced. The dropping price of broadband
and the introduction of a wider variety
of cheaper devices, with smartphones
leading the pack (particularly in emerg-
ing markets), are making it easier to
access information.
“You may have to view your opera-
tions, products and services in this light,”
notes Govender. “Instead of buying
equipment that could be obsolete within
a year, you could be better off saving the
capital and leasing equipment instead.
If your business relies on marketing, the
technological revolution could mean
swopping from printed material to elec-
tronically-delivered catalogues.”
He says that asking, “What if?” about
your business and the industry that you
work in is also important.
Think about new processes that
could be introduced, which competi-
tors could enter the market and how
your products or services would meas-

ure up. The key to success is being able
to look at your business with a critical
eye, evaluate how it operates, and how
things could be improved to maintain
your competitive edge.
Evaluate your customer base. Always
be aware of who your customers are,
what they want and where they live.
By keeping an eye on the area in which
your business
is situated
or areas you
serve, you can
identify chang-
es in the neigh-
bourhood and
be able develop
your offerings accordingly to increase
your sales.
Govender explains: “You may find, for
example, that young, upwardly mobile
professionals are buying or renovating
houses in the area. By knowing this, you
could develop products or services that
would be of interest to them and cre-
ate new market opportunities for your
business.
“It may seem irrelevant to think about
the environment when considering your
small business. The truth, however, is

that people are becoming increasingly
conscious about the impact they have
on the environment.”
It would be misguided to think
that your business won’t be impacted
because people love your products
and don’t care about the materials or
packaging you use. By taking action to
ensure that you use recyclable materi-
als and that your products have no or a
reduced adverse impact on the planet,
you could be safeguarding the future of
your business.
In his TED talk titled Profit’s Not
Always the Point, COO of Unilever Harish
Manwani argues that 21st century com-
panies have to look beyond self-interest
and embrace responsible growth if they
want to thrive. He urges companies to
define a purpose that embraces respon-
sibility.
■
Gazing into the
crystal ball of work
Trend ing
BY BLAIR BURMEISTER
business
i
tuat
e

d
e
as y
o
u
, y
o
u
c
a
n

f
y chan
g
-
th
e nei
gh
-
h
oo
d
an
d

b
le develo
p
off

erings accordingly to increase

s
ales.
o
vender explains: “You may
f
ind,
f
o
r
ple, that young, upwardly mobile

ssionals are buying or renovating

BY BLAIR B
U
RMEI
S
TE
R
Gallo Images/Thinkstock
INSIGHT
Absa Bank Ltd Reg No 1986/004794/06 Authorised Financial Services Provider Registered Credit Provider Reg No NCRCP7
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INSIGHT
Context
www.finweek.com
THE RISE OF THE
8 FINWEEK 20 MARCH 2014
SUPERCAR
SURGE (US)
12 000
4 000
2008 2013
NEW
REGISTRATIONS
Maserati
Ferrari
Bentley
Lamborghini
US
SOURCE: Edmunds.com, IHS Inc.
PULLING
AWAY
Supercar sales
Total vehicle sales
(% change in
sales between
2009 and 2013)
-35%
33%

THE BIG NAMES in sports cars
are all cashing in on the American
public’s ever-increasing appetite
for generously priced cars. At
the recent Geneva Motor Show,
Lamborghini unveiled the Huracan
($182 000) and Ferrari the
California T (about $205 000).
Maserati, which has been doing
especially well in the US, showed
o its Alfieri concept car. Porsche
went bigger with the 918 Spyder,
with a listed price of $845 000.
500
1 500
2 500
4 000
2008 to 2013
SUPERCAR MARKET
INSIGHT
LIFE IN THE FAST LANE
Sales of sports and luxury vehicles are proving to be highly resilient, both in South Africa and abroad.
A Porsche has again been voted South Africa’s Car of the Year. In many markets it would seem that sports and
exotic cars are outperforming other cars, not just on the road but also on the sales sheets and the bottom line.
SOURCE: WesBank
Large
Entry-level
Medium
Sports/Exotic
Luxury

SUV
SA
%
GROWTH (OR DECLINE)
IN SALES IN VARIOUS
VEHICLE SEGMENTS
2002 2013
-60
80
0
ACCORDING TO THE National Association of Automobile
Manufacturers of South Africa (Naamsa), new vehicle sales
in the Sports and Exotics category increased by 27% in 2013,
making it the fastest-growing market segment for the year.
However, growth still slowed down in almost all sectors.
SELECTED SA
LUXURY BRAND
TOTAL SALES IN
FEBRUARY 2014
FERRARI
JAGUAR
LAND ROVER
MASERATI
PORSCHE
4
714
2
96
How to make a mill
COVER

10 FINWEEK 20 MARCH 2014
Can it be done? Can you be a million rand richer five years from now?
ion in 5 years (or less)
COVER
FINWEEK 20 MARCH 2014 11
BY KRISTIA VAN HEERDEN
NAME THE DESIRE
You would think your road to R1m
would start with some money, but we’re
happy to report that the first step is as
easy as answering a question.
Garner says he often talks to clients
who want to save money or make a mil-
lion without knowing why. “Without a
real reason to save, the odds of sticking to
the savings plan in the long term dwin-
dles slowly. The simple reality is that we
need a cause or solid reason to get behind
a plan to keep us motivated. The money
then becomes the means to an end, not
the end in itself.”
Oddly, wanting a million for the
sake of having a million is probably not
enough. Before starting your journey to
the millionaires’ club, you have to decide
why you need the money. Perhaps a little
introspection will reveal that you don’t
need a million after all. If that’s the case,
we would recommend you stop reading
immediately. However, if you find that

you need a million to start a business,
take a year off work or build yourself a
completely new face through intricate
plastic surgery, Garner says you might
just make it. “Your chances of succeed-
ing will go up incrementally with each
month if you’re saving towards a specific
goal.”
FACE REALITY
Knowing what you want is an
important first step but not enough to get
you to the finish line, which is why your
next step should be a long, hard look in
the mirror. Investors are often unwilling
COVER
12 FINWEEK 20 MARCH 2014
The word ‘million’ might scare you, but
understanding how much you have to
pay in current happiness in favour of
future happiness is very basic mathemat-
ics (provided the the word ‘mathematics’
F
inancial adviser Warren Ingram likes to say making
the first million is always the hardest. Unfortunately,
many of us non-millionaires can attest to the truth
of this statement. Getting from one to a million is possible,
but if you hope to achieve that goal while you’re still in
charge of all your faculties, you should probably get crack-
ing right now.
So how do you go from zero to six zero hero in five years

(or less)? Jason Garner, strategic relationship manager for
Old Mutual Wealth, is familiar with the question. “My clients
often expect some magical answer, like there was a memo
that they didn’t get,” he says. “The reality is that most of
us have some idea of how to go about making the elusive
million but, quite frankly, we lack the motivation to do so.”
to face up to the reality of their current
financial situation, which makes plotting
world domination tricky.
“We need to look at what we have at
our disposal, what changes we are pre-
pared to make in order to achieve the
desired goal and what risks we are pre-
pared to take,” Garner says. If you aren’t
currently earning an income, odds are
that you probably won’t be able to reach
your goal of R1m in five years. If you are
putting three kids through school, you
might not be able to save as aggressively
and would have to delay the one million
celebration by a few years. A sustainable
and achievable plan requires clarity and
honesty. Only once you face up to the
reality of your situation can you pick an
action plan that best suits you.
DO THE MATHS
doesn’t scare you too).
“The goal is to accumulate R1m in
five years,” explains Ben Smit, strategy
and marketing guide at business incuba-

tor Raizcorp. “Break this long-term goal
down into smaller objectives. R1m in five
years becomes R200 000 per annum,
which becomes R17 000 per month.”
This strategy is what Garner calls
the ‘no growth’ savings plan. Whether
you put R17 000 in the bank or under
your mattress, you’ll be a millionaire by
the end of five years. Luckily that’s not
your only option. You can also choose the
capital and growth plan, where you invest
a lump sum for five years, or a combin-
ation of savings and capital investment to
get you there.
THE CAPITAL AND GROWTH PLAN
Term: 60 months
Capital investment: R783 530
Monthly contribution: R0
Real return (after inflation):
5% per annum
THE COMBINATION
Term: 60 months
Capital investment: R250 000
Monthly contribution: R10 021
Real return (after inflation):
5% per annum
Deciding which option is right for you
will require a fair amount of time and
research. To make the process easier,
don’t hesitate to engage with a finan-

cial planner who will help you deter-
mine your risk appetite and investment
options.
COVER
FINWEEK 20 MARCH 2014 13
WWYFAD? (WHAT WOULD YOUR FINANCIAL ADVISER DO?)
ALEXANDER BABICH is the CEO of Alexander Babich and Associates, an independent
financial planning firm in Johannesburg. He says the basics of financial freedom are actu-
ally quite simple:
■ Save more than you spend.
■ Let your money work for you: if you invest
that saved money in shares, unit trusts or
a business and earn 10% per year, your
money is earning you more money.
■ Compounding is your friend: when you
earn interest, your money grows. When
you reinvest the interest you earned, that
interest earns interest. Compounding
refers to this snowball effect and is what
allows the money which you already have
to earn you more money.
■ Don’t rely on your salary: most wealthy
people who became millionaires through
blood, sweat, tears and determination
also realised that working for a salary
was not necessarily a recipe for true
financial independence. You need to be
courageous to venture out on your own.
Being an entrepreneur is not for the faint-
hearted.

■ Neither a borrower or a lender be: the
recipe for financial independence is to
save, plan and believe in yourself. Brush
up on your knowledge and understand-
ing of investing.
■ Ask for help: if you lack the skills and
confidence, find a competent and ex-
perienced financial adviser with a proven
track record.
Smit says that it’s important to be patient
and not to lose sight of your goals once you’ve
identified your strategy. You also have to let
those around you know about your strategy.
Saving R17 000 in your personal capacity will
MILLIONS FROM BUSINESS
IF SETTING ASIDE your hard-earned
pennies doesn’t seem like the best way
to get your million, starting a business
might just help you on your way.
Starting a business is an entirely differ-
ent matter, and at Finweek we spend
a lot of time unpacking the challenges
of entrepreneurship. If you feel you are
up to the task, Smit says it’s important
to define the boundaries of where you
want to compete in the market. Before
starting a business, he advises that you
answer the questions below to deter-
mine if you have a competitive advan-
tage. Starting a business that is doomed

to fail probably won’t help you make
that million. Ask yourself:
■ What is the current market size?
■ Can you segment that market further
to find pockets of opportunity that
you can specialise in or focus on?
■ Do you and your business have the
skills and expertise to be able to scale
to a size that will achieve your R1m
objective?
■ Do you know the customer’s needs so
that you can fulfil it?
■ How do you win in the markets that
you play in?
■ What sets you apart from the compe-
tition?
■ Do you have resources that are rare,
HONOUR THE STRATEGY
mean that you have to say no to the occa-
sional weekend away. When your friends
understand that you’re trying to build an
empire, they’re more likely to forgive your
reclusive behaviour.
MOVE IT!
Millionaires know that momentum
is key. At some point you have to jump in
and do, or – as is often the case – hurry up
and wait. “To get started, you are going to
need to commit some capital. Then you
need to save some money every month and,

lastly, you need to invest in something that
will give you the real return that you need
to grow your money sufficiently over five
years,” says Garner.
It sounds simple, but that’s not the end
of it. “You have to keep reminding yourself
to keep saving, stop wasting money and
stay invested for the full five years, even if
the investment doesn’t perform in the short
term. You have to stick to the strategy!”
BE YOUR OWN WORST CRITIC
Critical to the success and failure of
your investment is the ongoing measurement
of your progress. This process should entail
revisiting the main objective to ensure that
it is still relevant. Checking your progress
to date and ensure that you are on track.
Lastly, if any changes need to be made to
the objective or the strategy, make the rele-
vant adjustments sooner rather than later.
■
valuable and inimitable, which give you
a unique value system and create bar-
riers to entry for competitors?
■ Do you have intellectual property?
Smit says that you should decide what
skills, capabilities and resources you pos-
sess that are relevant and will enable you
to achieve your aspirations. “Allocate
resources to critical areas. A lot of time

you have to weigh up what you want with
what you are willing to risk or sacrifice.
Remember, entrepreneurship is living for
a short while like no-one wants to, to be
able to live rest of your life like no-one else
can afford to!”
For more tips on starting a successful
business, visit the Shirts and Skirts section
on Finweek.com.
INFLATION IS NOT
YOUR FRIEND
The consumer price index (CPI) is the
measure that we use to determine how
much inflation eats away at what we can
buy with our money. When your 76-year-
old uncle drones on about how he only
paid 20c for bread back in the day, he is
referring to the effects of inflation.
This means that your money is worth
a little less every year. Even if you’ve
invested your money, the fees you pay
for that service chips away your wealth.
“Make sure you understand all the
fees and inflation because these factors
erode the true value of our R1m invest-
ment outcome over a five-year period.
For example, if inflation is 6% and you’re
paying 2% in fees, your money needs to
grow at a minimum of 8% in order to
achieve our goal of R1m in real terms.”

In other words, in five years you’ll need
R1.2m to buy what R1m could buy today.
Gallo Images/Thinkstock
COVER
14 FINWEEK 20 MARCH 2014
This week’s cover star Chris Bischoff and his brother Nic
raised R1.5m on Kickstarter for their new computer game,
Stasis. Impressive though it may be, the Kickstarter campaign
wasn’t the brothers’ first foray into the millionaires’ club.
A millionaire
in our midst
COVER
FINWEEK 20 MARCH 2014 15
G
rowing up, the brothers
knew that they wanted to
run a company together,
even though they weren’t
quite sure about the industry. As a
high-school student, Chris worked
with his interior designer dad doing
illustrations for the restaurant indus-
try. Choosing not to pursue a degree,
he spent two years honing his craft
and building a small client base.
When their parents decided to move
to Durban, Chris approached his
largest client for a full-time job to sus-
tain him. He was permanently
employed as an architectural illustra-

tor for 18 months when opportunity
came knocking. “At this time my
brother was a lecturer at Damelin,
which was doing some sort of restruc-
turing. He got retrenched and got a
very nice retrenchment package.”
Nic’s retrenchment money, about
three months’ worth of his salary, and
a computer that Chris took from his
previous
company
instead
of a 13th
cheque,
gave the
brothers
the boost
that they
needed to
start their own agency, Burn. The
company, which renders 3D illustra-
tions of architectural projects, took
its first steps in Nic’s kitchen. At that
point the 3D illustration industry was
non-existent locally. Aside from free-
lancers doing 2D hand illustrations
and one other Durban-based com-
pany, the brothers offered a brand new
service that would prove remarkably
lucrative.

“We made as if we were in the
industry for 10 years,” Chris laughs.
“The phone would ring and I would
be in the background moving papers
around to make it sound like there
were more people in the office.”
The fact that they didn’t have
offices meant that they would sched-
ule meetings at their clients’ offices.
This later became a trademark. “We
said we’ll come to your office because
we didn’t actually have an office, but
that became a core component of our
business. We go to our clients’ spaces
and fit in with their schedules. We
built our company around being able
to go to people’s offices to sit with
them. Even though we now have
offices and boardrooms and the rest
of it, we don’t really have meetings at
our studio.”
THE FIRST MILLION
“I can’t think of the date when we
hit our first million, but we went out
to dinner, and Nic said, ‘Oh, by the
way, we made our first million.’ It
was quite a surreal experience, espe-
cially because I thought it would be
bigger as a
personal

thing.
When you
actually
get there,
you think
the next
million
will actu-
ally be better, and then you think five
million will be even better.”
Chris says the best part about
making your first million is prov-
ing to yourself that it is possible. “It
makes the next one less daunting and
you start to see the forest for the trees.
You realise that you didn’t die doing
it. It wasn’t a soul-crushing, horrible
experience. It was a lot of fun to get
there.”
THE QUICK MILLION
“It was about three years into starting
our company, Burn, that we got to our
first large landmark, which was R1m.
By comparison, the Kickstarter mil-
lion took us 22 days to hit. Because
we had done it before, we knew that
we could do it. It sounds silly but you
do get a confidence boost. Hitting the
first $100 000 on Kickstarter was a
relief. It was a cool experience because

it happened a lot faster than the first
one. You get that rush of making your
first money. As a kid I used to house
sit people’s houses and charged them
R20 to walk their dog. You get that
same sort of rush of, ‘I did it, and I
can actually do it!’ It gave us the con-
fidence to move forward with the
project.”
Visit Finweek.com for a video
interview with Chris Bischoff.
■
Who better to give advice on mak-
ing a million than someone who has
managed to do it many times? Chris
has five no-nonsense tips to make
a million:
1. “Nic always says it’s a case of
scratching your own itch. Find
something that you do and do
very well, do it very well and
charge money for it.”
2. “Don’t avoid the tax man
because you will get bitten.”
3. “Hire a good accountant.”
4. “Have good hair.”
5. “Have confidence in your
ideas and have confidence going
forward. If you doubt yourself
someone else isn’t going to have

confidence in your ideas. We told
people that we were this massive
company. If you’re not confident,
just fake it. You will get there.”
HOW TO GET TO
ONE MILLION
ASIDE FROM FREELANCERS DOING
2D HAND ILLUSTRATIONS AND ONE
OTHER DURBAN-BASED COMPANY,
THE BROTHERS OFFERED A BRAND
NEW SERVICE THAT WOULD PROVE
REMARKABLY LUCRATIVE.
COVER
16 FINWEEK 20 MARCH 2014
S
cott Picken, senior managing
partner of Wealth Migrate,
author and founder of the
International Property Foun-
dation (IPF), believes that asking how
to make a million is the wrong ques-
tion, and he might just be right. “What
wealthy people understand is that it’s
not about how much money you have
in the bank but how many passive
income streams you have. Is it better to
have a million in the bank, or a passive
income of R10 000 per month from
five different sources? I can guarantee
you that anyone who is wealthy will

understand that it is the latter,” he
states. While R1m can help you unlock
opportunities, Picken believes not
knowing how to create passive income
will always stand in the way of your
financial freedom.
Picken, who earned R2m on his first
ever property deal, believes that creat-
ing value is the easiest way to make
R1m. This is a concept he grasped at
age 22 and offers his own success story
as an example.
“A friend and I found a house
in Cape Town with high density
zoning when I was 22. We wanted to
build 34 student
apartments, but
as we were close
to the river we
could not build
a basement for
parking. We
bought the property together and occu-
pied it with students while we went
through all the planning and zoning.
Once we had everything in place, we
proposed a joint venture with an estab-
lished developer, which was accepted.
We developed the house into six town-
Let income streams

become a flood
houses and sold them into the market.
We made over R4m in profit, just over
R2m each.”
He understood right away that his
first millions were an opportunity to
create more wealth and they started
looking at offshore property. They
invested in a property in London, close
to Wimbledon
station and home
to nearly 60 000
South Africans
in need of lodg-
ing. They put in
£20 000 of their
own money to use to build two more
bedrooms.
“In London you rent properties by
the bedroom and suddenly we had five
income streams. We lived in the house
while we did this, which was inconveni-
ent, but if you live in a property for one
year in the UK you aren’t susceptible
to capital gains tax. With the value we
added to the house, we re-mortgaged
and bought another property, which
we moved into and did the same thing
again. We earned over £1 000 passive
income per property.”

The same principles that earned
Pickens his first million later ended
in him turning a $4m company into a
$40m company that listed on the Aus-
tralian exchange in less than five years.
“To create money or income streams,
you have to have knowledge and skills,”
he says, but adds that nobody ever
learnt to swim by reading a book. “You
have to get started, manage your risks
and learn along the way. The more you
can partner with experienced people,
the more successful you will be. If you
understand this, achieving both objec-
tives is easy!”
■
“TO CREATE MONEY
OR INCOME STREAMS,
YOU HAVE TO HAVE
KNOWLEDGE AND SKILLS.”
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F
or any business, regardless of
its size or the sector in which it
operates, entering new mar-
kets is a risky and, on many
levels, daunting prospect. But for many,
it is the only way forward – and the nat-
ural next step in a company’s life cycle.
In our previous two articles in this
series, Finweek explored the opportu-
nities presented by the nascent African
FEATURE
18 FINWEEK 20 MARCH 2014
SafeTrade
DYNAMIC MARKETS –
THE UNUSUAL SUSPECTS

Besides fast-growing African countries,
PwC’s Venables says that large multina-
tionals seeking growth are also looking
closely at parts of Europe, the Middle East
and South America.
Indeed, in its recently released Dynam-
ic Markets Index, GIBS identified some
unexpected countries as ‘Dynamic’ – a
term used to describe markets that have

shown steady improvement and growth
since 2006. The GIBS list included Geor-
gia, Poland, Bulgaria, Peru, Uruguay, Pan-
ama, the UAE, Kuwait and Jordan.
BY JESSICA HUBBARD
Emerging vs developed
market challenges
e-commerce industry, as well as the ways
in which businesses can position them-
selves for success in fast-growing African
markets.
While these markets are indeed
attractive propositions, and are mak-
ing steady progress in becoming more
business-friendly, outsiders still face
significant challenges. As Greg Benja-
min, Mergers and Acquisition (M&A)
advisory leader at Deloitte, pointed out to
Finweek, when one compares the num-
ber and intensity of discussions around
going into Africa (i.e. the intent) and the
number of deals that actually go through,
there is clearly a very solid stumbling
block that businesses run into.

INTENT VS ACTION
“When you look at the overall picture,
and the deals that are consummated, it’s
not massive,” explains Benjamin, which
is a strong indication that the barriers

remain high. These barriers, unsurpris-
ingly, are vastly different in nature to
those one would encounter when enter-
ing developed markets such as the US
and Europe.
Gallo images/Getty images: Colin Anderson
FINWEEK 20 MARCH 2014 19
FEATURE
First, as Dr Lyal White, director of
the Centre for Dynamic Markets at the
Gordon Institute of Business Science
(GIBS), points out: “nothing is what it
seems”.
“When doing business in African
countries, for example, it is often a far
cry from what our expectations are,” he
says. “The legislation and regulations are
very complex and in many cases, are fluid
and changing all the time . . . certain rules
and requirements can change overnight,
so there is a lack of consistency which
outsiders are not used to.”
He adds that often South African
businesspeople tend to try and simplify
the problems, whereas the issues are
much more granular and require a flex-
ible, open-ended approach.
PUTTING IN THE HARD GRAFT
To best prepare for such complex envir-
onments, White emphasises the impor-

tance of doing the necessary due diligence
and making sure that you understand the
legal and regulatory environment that
you are entering into.
“Due diligence is imperative, espe-
cially for the smaller guys, as the costs of
entry are very high and you need to have
a solid foundation to work from,” he says.
Critically, due diligence involves spend-
ing time in market, forming relationships
and getting to understand the various cul-
tural nuances that will directly affect the
way business deals are carried out.

LOCAL PERCEPTIONS
Another challenge that White highlights
is the tendency among African locals to
view South African businesspeople as
‘neo-colonialists’ – something which
hasn’t been helped by what White says is
often ‘arrogant’ behaviour on the part of
South Africans and a need to do things
‘their way’.
“In many cases, we are not seen as
‘African’, so I believe there is a lot of
work that needs to be done around that,
which could go a long way in improving
business relations across the continent,”
White adds.
Besides the cultural and historical

challenges, Deloitte’s Benjamin says that
there is also a clear mismatch with price
expectations.
“Unlike in Europe or the US, where
there is a large number of big businesses,
there aren’t nearly as many attractive
opportunities in African markets – the
volume is vastly different,” he explains.
“But cash is chasing yield, and for that,
the locals are pushing up prices . . . bridg-
ing that gap between the expectations of
buyers and sellers is still a huge hurdle
when trying to execute deals in these
markets.”
He adds: “That said, every deal is
unique, and the challenges will differ for
everyone.”
EMERGING MARKET EXPERTISE
Simon Venables, M&A leader at PwC,
says that those who come from emerging
markets, such as South Africa, have a sig-
nificant edge over their developed market
counterparts.
“Many businesses have a good pedi-
gree in emerging markets, and under-
stand the challenges,” he says. “That
understanding of how things work in
emerging markets definitely plays in their
favour, because there are lots of similari-
ties across these countries.”

For example, investors from dynamic
and fast growing South American mar-
kets might well be far better equipped to
handle inconsistent government policies
and political uncertainty in African coun-
tries than business people from the US or
Australia – where stability and control is
the name of the game.
On the other hand, as White high-
lighted, the ‘ring-fenced’ nature of the
business environment in countries such
as the US and Western Europe – where
strict controls and tight regulations char-
acterise deal making – often prove enor-
mously challenging for entrants from
emerging markets.
■

REAL ESTATE BOOM
Simon
Venables
In the Real Estate 2020: Building the
future report which focuses on the glo-
bal real estate industry, PwC highlighted
the impact of explosive emerging econ-
omy growth on the sector.
The report forecasted that the global
stock of investable real estate will rise
by more than 55% to around $45.3tr by
2020 (from a 2012 total of $29tr). This

expansion, states PwC, will be greatest
in emerging economies “where eco-
nomic development will lead to better
tenant quality and, in some countries,
clearer property rights and will play out
across housing, commercial real estate
and infrastructure”.
“Already thousands of people
migrate from country to city across
Asia, the Middle East, Latin America
and Africa, attracted by the wealth of
these new economies,” explained Kees
Hage, global real estate leader at PwC.
“By 2020, this migration will be firmly
established. Cities in these regions will
swell and some entirely new ones will
spring up . . .”
The report predicts that total invest-
able real estate in Sub-Saharan Africa
would rise by a staggering 90% to $0.7tr
by 2020, from a 2012 total of $0.4tr.
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5
Reasons
to join
the club
1
D
2
F
F
S
outh Africa’s listed prop-
erty sector is now in con-
solidation mode following
a flood of new entrants
from 2010 through to 2013. Since
2010 some 17 new property players
listed on the JSE’s main board and
the AltX. The sector’s market capi-
talisation grew to R188bn at the end
of 2013 from R117bn at the end of
2010. Currently the sector is valued
at around R181bn.
The trouble now, however, is that
many of the listed players are small and
therefore carry with them an element
of concentration risk either on a par-
ticular tenant or node. There are also
other issues at play, making it hard
for these funds to make a significant
impact on the market.

Keillen Ndlovu, head of listed
property funds at Stanlib, says that
market dynamics have changed over
the last eight months or so, making
the environment more challenging for
Consolidation brings
new listed opportunities
INVESTMENT
22 FINWEEK 20 MARCH 2014
Investment
smaller property funds. This presents
an opportunity for the large players to
acquire the smaller players and in the
process diversify while bringing on
board new exposure.
Nesi Chetty, head of property at
Momentum Asset Management, says
that consolidation is a key theme for
the sector this year. This will likely
result in an improvement in liquidity
in the sector, and inefficient companies
will either be restructured or stripped
of assets.
The price-to-book valuation of the
sector has been expensive from 2012
BY TANDISIZWE MAHLUTSHANA
Acquirer Acquisition Yield Value
Growthpoint Tiber Properties 7.44% R6.2bn
Redefine Maponya Mall (51%) 7.6% R727m
Hyprop African Land Investments (87%) 8.1% R768m

Vukile Synergy Property Fund (34%) 8.5% R340m
Rebosis & Delta Ascension Manco
Ascension B Units
-
8.86%
R130m
R290m
Texton Consortium Vunani Property Investment Fund
Manco
- R117m
Arrowhead Jika Properties
Vividend Income Fund (31,7%)
10%
10.8%
R406m
R412m
Redefine Annuity Properties
Annuity Manco
8.5%
-
-
R103m
PROPERTY SECTOR CONSOLIDATION HIGHLIGHTS
Source: Momentum Asset Management, Finweek
Nesi
Chetty
FINWEEK 20 MARCH 2014 23
INVESTMENT
through to 2013, although the trend is
reversing at the moment.

“When the price-to-book valuation
of the sector is at a premium, players
tend to go to the market to raise capital
as their shares trade at premiums to net
asset value (NAV). They get a higher
price on a per-share basis, therefore
they can raise more capital by issuing
less shares at a higher price to NAV,”
Chetty explains.
That, however, has been a major
challenge for the smaller property
stocks because it is expensive for them
to raise capital from the debt capital
markets while bigger funds are able to
raise capital at lower borrowing costs.
“The other challenge with smaller
funds is that their share prices have not
re-rated and therefore it makes it diffi-
cult for them to make yield-enhancing
acquisitions or to compete for assets
with bigger property companies who
have better ratings and bigger balance
sheets,” says Ndlovu.
There have been various trans-
actions giving life to this consolidation
but one that seems to have caught many
investors’ eyes is the three-way merger
between Rebosis, Ascension and Delta.
Ndlovu says the potential merged
entity will become the BEE fund of

choice or Government landlord of choice
in the listed property sector. “Besides,
there can only be so many funds focus-
ing on Government as a tenant.”
The proposed merger has received
publically declared support from
Stanlib, Momentum and Coronation.
Chetty estimates that the market
capitalisation for the merged entity
could be around R11bn, with a com-
bined portfolio of R16bn.
“That entity could potentially be
included in the MSCI Indices, which
would make it attract foreign inter-
est and enable it to do more deals,
and potentially also end up in the JSE
Top40,” he says.
The transaction will also potentially
help Rebosis and Delta avoid losing
money in a protracted legal battle in
their fight over Ascension. Ndlovu
adds that such fights are not good for
the sector as it could taint the image of
BEE property funds.
The transaction is currently in due
diligence stages and when that process
is complete and final numbers or swap
ratios have been put on the table and
are pleasing to the market, the deal is
likely to get a thumbs up.

Another recently announced trans-
action sees Redefine, with a market
capitalisation of R28bn, make an offer
to acquire Annuity Properties in a
share-for-share deal. Annuity has a
market capitalisation of R1.2bn.
Redefine, which has already
received 79% of support from Annuity
shareholders, would also acquire the
Annuity management companies for a
cash consideration of R103m.
■
Listed property investors haven’t
had much good news since it became
apparent that the stellar returns that
they’d been receiving from the sector
in 2011 and 2012 were now a thing of
the past. The sector has been hit by a
series of economic variations, both
locally and globally.
The increasing global bond yields, as
a result of the US Federal Reserve’s
decision last year to decrease by
$10bn a month – its quantitative eas-
ing stimulus plan for bond purchases
– as well as the decision by the South
African Reserve Bank to increase
interest rates, with further increases
expected, have contributed to the
negative investor sentiment towards

listed property.
Ian Anderson, chief investment officer
at Grindrod Asset Management, says
that increases in local interest rates
and global bond yields are perceived
by investors to be negative for the sec-
tor from a price perspective. In reality,
their impact on the companies is short
term in nature. “Listed property com-
panies have proved that they are fun-
damentally strong by producing
better-than-expected results. We’re
expecting the sector to grow distribu-
tions 8% this year,” says Anderson.
The sector returned in excess of 8% in
2013, a poor return compared to 21%
enjoyed by equity investors in the
same period.
Chetty, however, explains that listed
property is a long-term performer as
its returns over the past 10 years have
clearly beaten those of equities. Long-
term investors always get rewarded
handsomely by listed property.
Asset class 1 Year 3 Year pa 5 year pa 10 Year pa
Property 8% 17% 19% 23%
Inflation-
linked bonds
1% 11% 10% 11%
Bonds 1% 8% 8% 9%

Cash 5% 5% 6% 8%
Equity 21% 18% 21% 20%
PROPERTY LONGER-TERM PERFORMANCE
Source: Momentum Asset Management
STILL VALUE IN PROPERTY
Keillen
Ndlovu
P
etmin, a R1.15bn mid-tier
mining company, dabbled in
an international diversifica-
tion programme several years
ago, buying into exploration ventures in
Canada and Turkey. It is now looking
closer to home for growth.
The group recently announced plans
to externalise its shares in the North
Atlantic Iron Corporation (NAIC)
– likely to be 40% once it takes up
options – by separately listing the asset in
Toronto and Johannesburg and then
unbundling to shareholders.
Bradley Doig, business development
executive at Petmin, says the company
doesn’t want to sacrifice cash flow from
its profitable anthracite mine in KwaZu-
lu-Natal (Somkhele) to some far-flung
North American venture that’s probably
very cash hungry. Although promising,
NAIC hasn’t captured the imagination

of investors.
According to former chairman Ian
Cockerill, there’s no trace of recognition
of NAIC in Petmin’s share price at all.
It’s therefore unlikely that Petmin will
plough any more funds into Sivas, a cop-
per development in Turkey, either.
These investments were made at the
end of the mining bull market when
even development and junior players
thought they were bulletproof. The
view now, however, is that the market
will reward home-grown endeavours.
Thus, Petmin has turned to the local
thermal coal market.
It already has some thermal coal
production by means of a plant exten-
sion at Somkhele that allows it to treat
‘middlings’ coal – a grade of fuel that’s
neither export nor domestic coal qual-
ity – which it sells to merchants who
Petmin now seeking
growth closer to home
INVESTMENT
24 FINWEEK 20 MARCH 2014
mix it with other grades and then on-
sell to Eskom.
Petmin now wants more of this busi-
ness, especially as Eskom is something of
a captive market. Eskom has estimated

that there’s some 1.8bn tons to 2bn tons
of coal supply shortfall from 2018 to
2040, so it’s desperate for supply.
Doig says the company has been
approached by SA institutions that are
prepared to finance an acquisition with-
out recourse to Petmin – the debt will be
carried by the asset – on the basis that
Eskom is prepared to pay a premium for
coal obtained through a BEE supplier.
This is in terms of the Department of
Public Enterprises’ insistence that new
coal suppliers to Eskom must be 50%
plus one share empowered.
“We would look for something at
the 3m ton a year mark,” says Doig
of a potential acquisition. “Something
we can manage and understand, or is
a brownfields expansion that needs
some assistance with restructuring
and capital.”
■
BY DAVID MCKAY
Bradley
Doig
Gallo Images/Thinkstock
T
here’s an ongoing debate in
financial circles about the
merits and demerits of active

versus passive investment
strategies. As the name implies, an active
investment strategy involves making use
of an investment vehicle that is overseen
by an asset manager who tries to outper-
form the market, usually by measuring
his or her performance against a bench-
mark index of stocks, bonds or other asset
classes. A perfect example of this would
be a unit trust fund, as covered in last
week’s article (What are unit trusts?).
Those in favour of active invest-
ment strategies argue that asset man-
agers with the appropriate expertise
and access to research are able to use
fluctuations in market values to earn
their clients extra money through the
purchase and sale of assets at opportune
times. For example, an asset manager
who managed to sniff out some new
information on an impending calam-
ity facing a particular stock before any
rival investor caught wind of it would be
able to sell out of that share ahead of the
ensuing price decline. That would ena-
ble the asset manager to make money
for the fund members.
The biggest criticism of the active
investment strategy is that it comes at
a cost. “You’re effectively paying money

out of your retirement savings so that
some guy with CFA [Chartered Finan-
cial Analyst] after his name can sit in a
fancy office sipping lattes all day,” is how
one particularly vociferous critic of this
strategy puts it.
In contrast, passive investment
involves buying into an investment
vehicle that merely aims to track a par-
ticular index, such as the JSE All Share
Index or Top40 Index, through the com-
pilation of a portfolio that consists of the
same shares in the same weightings or
proportions as the shares that exist in
that index. A good local example would
be the various Satrix offerings, which in
most guises attempt to track various sec-
Index-linked investments:
The art of passive punting
INVESTMENT
tors or components of the JSE.
Those in favour of passive invest-
ment strategies argue that you don’t
need a portfolio manager to oversee your
money as very few of them actually man-
age to outperform the market over time.
Moreover, they argue that the lower costs
you pay on index-linked products more
than compensate for not having someone
managing your investment on a day-to-

day basis. Their argument against the
cost of active investment gains even more
credence when one considers the effect
this can have on your retirement savings
when those costs are compounded over
several decades.
Of course, the counter argument is
that having your money in an investment
product that is overseen by a fund man-
ager effectively allows non-performing
stocks to be dumped from your portfolio,
thereby helping you to separate the dogs
from the diamonds in times of market
strife. A good example would be African
Bank Investments Limited (Abil), which
BY GARTH THEUNISSEN