Over the past decade, Kagiso Trust Investments (KTI) has pursued probably the most conservative investment philosophy of all SA's big black economic empowerment (BEE) groups.
The approach has paid off.
Other high-flyers of the 1990s such as New Africa Investments Ltd (Nail) and the Real Africa group collapsed under pressure from the market.
But KTI weathered the storms on the JSE Securities Exchange during the late 1990s and has emerged as one of the most focused and viable BEE groups in the country, thanks to a patient and rigorous investment philosophy.
The company has achieved high annual growth in net asset value with relatively low dilution of KTI's controlling interest. KTI has kept virtually the same management team, led by co-founders Eric Molobi, the executive chairman, and Johnson Njeke, the MD.
KTI was one of the first BEE groups in SA. It was formed in December 1993 with a capital injection of R26m from Kagiso Trust (KT), a nongovernmental organisation, which was looking for a way to reduce its dependence on donor funding.
The objectives were to provide a long-term means of financial support for the trust and to achieve true empowerment through active operational involvement in underlying investments.
In the early days, the company facilitated the listing of Real Africa Group in 1995 and sold soon afterwards, pocketing a healthy profit.
But it also lost money on a bad investment in building group Boumat during the mid-1990s, which was made on the assumption that the Reconstruction & Development Programme would take off in a big way.
Njeke, a chartered accountant who was previously a partner of a large auditing firm, says: "We are not under pressure to deliver funds for the trust. It has given us a mandate to use whatever cash we retain to build the group as long as we are creating value. We have paid R10m back to the trust over the years. Our long-term aim is to create a company of substance that will give long-term stability to the development initiatives of the trust."
Liberty Group provided R50m additional capital in November 1996 in the form of redeemable convertible preference shares, which were redeemed in July 2000.
During the same month Liberty Group and Nedcor Investment Bank subscribed for ordinary and preference shares worth R150m.
The trust now owns 52,5% of KTI's equity. Liberty Group and Nedcor each have 20,1%. An employee trust and other shareholders own the remaining 7,3%.
KTI initially focused on a range of investments, but has since narrowed its focus to media and financial services, including private equity.
The conservative investment philosophy led to the company turning down all opportunities to invest in information technology during the roaring 1990s.
"We are patient investors who do not follow the crowd. We questioned the fundamentals of the IT boom. We missed out on some opportunities, but we did not lose money. We did not understand what the whole IT boom was about," Njeke says.
KTI now owns 44,5% of Kagiso Media, a listed investment holding company, with interests in radio broadcasting and specialist publishing. The see-through value of the black shareholding in Kagiso Media, held through the trust and employees, is more than R200m. The company tried to dispose of its media interests to Nail two years ago, but the Independent Communications Authority of SA would not allow the transaction to go ahead.
KTI also owns a number of portfolio investments, including 15% of Kagiso Khulani Supervision Food Services, the second-largest industrial catering company in SA; and 5% of Boumat.
Njeke says the company is focusing on building an investment banking services group, though it has no desire to get a banking licence. With various partners, the financial services division has started five companies from scratch: Kagiso Financial Services; Kagiso Risk Solutions; Kagiso Asset Management; Kagiso Securities; and Kagiso Hedged Trading.
The group also manages Kagiso Ventures, a wholly owned R265m private equity fund. KTI provided R120m of the initial capital for the fund, which is now fully invested in a number of companies, including, most recently, Bytes Technology. KTI will start another fund in the near future.
In all its investments KTI has an effective stake of more than 50%.
Njeke says: "Our philosophy is that we commit our own capital from retained earnings when we make an investment. We have no debt on our balance sheet. We are cautious about creating smoke and mirrors when there is no economic interest.
"We shied away from the fancy structures that corporate financiers put before us. We are also not shy of starting businesses from scratch because we want our subsidiaries to have the stamp of our culture. We focus on the quality of an investment and not size. We do not believe in sacrificing shareholder value for size."
