WHEN the ‘fantastic four’ — Peter Bunting, Mark Golding, Garry Sinclair, and Christopher Williams — launched Proven in early 2010, they said the investment company would offer strong support to Caribbean entrepreneurs through alternative financing options while driving above average return on equity to shareholders.
So far, so good, said Williams, the company’s chief executive officer, who noted that a double-barrel approach — modelled off Warren Buffet’s Berkshire Hathaway — of dabbling in private equity and tradable securities has allowed it to maintain a solid balance.
Chris Bicknell, principal of TankWeld Group, chairs Proven’s investment management committee and lends his real sector experience to the company. Bunting and Golding have since moved on to serve the Government, but former DB&G partner and current LIME boss Sinclair, and Williams, who is the former managing director of NCB Capital Markets, provide their experience in the securities business.
“Warren Buffet’s model was unique at the time, and is still unique, but has proven to be very effective,” Williams told Caribbean Business Report.
“To have an organisation with that kind of flexibility and have so much cash is great for Jamaica and great for the Caribbean,” he said.
On the private equity side, Proven has had to exercise patience, Williams said, against the background that it is operating within a set of regional economies that is small and, along with the businesses that operate within them, are exposed to tremendous amount of volatility.
To date, the firm has acquired two existing companies — Guardian Asset Management, which is now Proven Wealth Limited (PWL), and hire purchase financing outfit Asset Management Company Limited. The company also formed Proven REIT for real estate-related investments, which has purchased a property that generates rental income.
But given the company’s initial proposal for at least one huge transaction per year, Williams said this is an area where the company has room to grow.
“We are really patient. We came in and got a deal with Guardian and that was very profitable for us,” Williams said.
“We have also stepped into the lending space and that company is doing extremely well — we have tripled the portfolio (in a year) and we are going to get a lot more aggressive in the coming few months,” he continued. “Outside of those two deals, we sat back… we are demonstrating patience which is very important because when you take a look at the landscape of private equity firms out of the Caribbean, it’s not pretty.”
Still, Williams emphasised that “the Caribbean now has an entity that is prepared to back an entrepreneur”.
“We are an entity that entrepreneurs can walk into and if it’s a good deal we can cut a cheque for US$20 million to US$30 million and get a transaction moving,” he declared.
The Guardian purchase not only added to Proven’s profitability, but also its scope, with PWL recently acquiring a member dealer licence on the Jamaica Stock Exchange. The licence will allow PWL to buy and sell listed securities on behalf of its clients or on its own behalf and bring securities to list on the market, among other opportunities presented on the exchange.
Meanwhile, trading gains from fixed income have contributed between 30 and 40 per cent of total income over the last three years, with the company timing the market well when trading in and out of bonds.
“So while we sitting back waiting on the private equity side, we stepped into tradable securities and pulled on our experience from NCB Capital Markets and DB&G and have been doing very well,” said Williams.
As uncertainty and volatility continued to permeate global markets last year, Proven reduced its equity portfolio considerably. Currently, over 99 per cent of its investment portfolio comprises fixed income instruments, with 81 per cent of this amount comprising investment grade securities under the Standard and Poor’s credit rating scale.
“The weighted average credit rating in our investment portfolio currently stands at BBB. This has benefited our shareholders as we maintain one of the highest risk weighted balance sheets on the JSE,” Williams said, adding, “we continue to vigorously monitor our portfolio to ensure that we limit our risk while at the same time widen our exposure just enough to reap the benefits of diversification and realise above average returns as markets and security prices rebound. Given the positive relationship between risk and return, we strive to strike a good balance between the two.”
Proven was incorporated in tax haven St Lucia and performs in US dollars. Its US-dollar listing of shares on the JSE was the first of its kind.
The company reported a five per cent increase in six-month net profits to US$2.1 million for the period ended September 30, 2012. Shareholder’s equity stood at US$35 million at the end of the period, an 18 per cent increase year over year.
Since inception, the company has paid dividends every quarter (most recently paying out US$0.0025 per share to ordinary shareholders in December) except one, with yields ranging from six to nine per cent over the three years.
Because the company is a St Lucian entity, dividends are tax free, and the US dollar share issue provided investors with the opportunity to remove their exposure to the devaluation in the Jamaican dollar.
“You can’t depend on stock prices because the market is so small. We have to focus on giving shareholders a consistent dividend that makes them feel comfortable and makes them feel confident in our long-term performance and from day one we said that that’s what we are going to do,” Williams said.
The Proven boss also pointed out that the original shareholders of the company came in at a book value of US$0.10 per share and as at September 30, 2012, the company’s book value per share stood at US$0.119, an almost 20 per cent increase in three years.
“That demonstrates that despite the fact that we have an aggressive dividend policy, we have also been able to grow the book value of the business and improve the balance sheet strength of the firm for the benefit of our ordinary shareholders,” Williams said.
Wiliams noted that the company has remained committed to maintaining an efficient cost structure, with the managers leading by example. Proven Investments, comprised of the company’s core management team, has a small team of six people.
“We share an office at the back of Proven Wealth. We don’t have elaborate offices, big staff complement and big fancy cars and all that.
Proven announced last year that it planned to spend US$12 million on three acquisitions of financial entities in the region. Williams said those plans are still in place.
“We continue to negotiate with the entities, we are targeting Cayman and Barbados – that’s where those entities are,” he said. “We have to get a good deal. If it’s not a good deal, our position is don’t do it.”
But until the company hammers down another private equity deal, Williams said it will use its mix of talent to manage cash efficiently and profitably.
“We have our team of traders here managing that securities portfolio and we have our team of private equity scouts on the road meeting with entrepreneurs right across the Caribbean and looking at opportunities,” said Williams.