Reinventing your investment group:

Transformation to wealth creation

August 24, 2012
Tony Wainaina
1. Case studies
2. Why
3. Structuring your Group
4. Investment Planning
others have done it!
> Unathi Investment Ltd.
> Trans-Century Ltd.
strong heritage, foundation
& vision
Contents
5. Management & deal
execution
?
transformation to nancial
well-being
2
Case study 1: Unathi Investment Ltd.
- unaLhl (Cod ls wlLh us" ln xhosa") was formed ln 2007 when 1 lady came up
wlLh Lhe ldea of brlnglng a group of women LogeLher Lo save and lnvesL for
reuremenL. 8y Lhe end of 2007, 19 women ln Lhelr early 30s had slgned up Lo
became shareholders. kLS1.4 mllllon was ralsed by Lhe end of 2007.
- MonLhly conLrlbuuons sLarLed aL kLS 10,000 (uSu 130) and by Lhe end of Lhe
rsL year - 2007, LoLal conLrlbuuons, whlch were all caplLallsed, sLood aL kLS
1,403,000.
- lrom 2007 Lo 2010, Lhe value of Lhelr conLrlbuuons exceeded Lhe value of
Lhelr poruollo - maklng a loss on Lhelr lnvesLmenLs.
- ln 2010 Lhey carrled ouL Lhelr rsL deLalled sLraLeglc plannlng workshop. 8y
Lhe end of 2011, Lhe value of Lhe poruollo (kLS16.6 mllllon)exceeded Lhe
value of conLrlbuuons (kLS13.3 mllllon) - maklng a posluve reLurn on Lhelr
lnvesLmenLs.
3
1. Case studies
- !"#$%& ($)& * +,-$"&--./$"0&0 $"0$#$0,1(- %2 32$" %4& 562,78 noL everyone ln
Lhe group needs Lo know each oLher from Lhe ouLseL. 1hls approach lmproves
Lhe probablllLy of a buslness raLher Lhan soclal agenda belng adopLed from
Lhe very beglnnlng.
- 9&16" :62/ :1$(,6&; 1"0 /2#& 2"8 Aer Lhe falled lnvesLmenL auempL LhaL
losL Lhem a subsLanual amounL of money unaLhl learnL Lhe meanlng of belng
well prepared Lo borrow from banks.
- <&#&(27 1"0 $/7(&/&"% 1 -%61%&5$= 7(1"8 unaLhl's rsL comprehenslve
sLraLeglc plan was developed ln early 2010. 1he group sLarLed lmplemenung
Lhe key resulL areas almosL lmmedlaLely and wlLhln 24 monLhs, had achleved
a poruollo value greaLer Lhan Lhe LoLal conLrlbuuon levels, for Lhe rsL ume ln
Lhelr hlsLory.
- >62:&--$2"1($-& /1"15&/&"%8 ulsengaglng Lhe shareholders from Lhe dlrecL
managemenL and admlnlsLrauon funcuons of Lhe group was key Lo lnluaung
unaLhl's Lransformauon beLween 2010 and 2011.
Learnings from the Unathi case study
1. Case studies
4
- ?1$"%1$" 1 -%62"5 -1#$"5- =,(%,6&8 MosL members have malnLalned monLhly
conLrlbuuons from Lhe beglnnlng - even ln Lhe dlmculL years when Lhe
vlablllLy of unaLhl as a long-Lerm lnvesLmenL vehlcle was uncerLaln.
- @267261%& A2#&6"1"=&8 Cver Lhey years governance sLrengLhened gradually,
and ln 2010 a board of dlrecLors was consuLuLed wlLh Lerms of reference for
Lhe board and for Lhe board commluees.
- 9&#&615& B2,6 =17$%1( +1-&8 Lven aer a falled rsL auempL Lo borrow
lnvesLmenL caplLal ln 2009, unaLhl persevered and succeeded ln securlng a
loan faclllLy ln 2011 for Lhe purchase of 3 properues. Leverage (borrowlng
money)was key Lo growlng Lhelr poruollo value by almosL 130 beLween
2010 and 2011.
Learnings from the Unathi case study
1. Case studies
5
Case study 2:
- 1rans-CenLury ls recognlsed as probably Lhe mosL successful lnvesLmenL
group ln LasL and CenLral Afrlca.
- Crlglns and developmenL over lLs 14-year hlsLory clearly demonsLraLe Lhe real
poLenual of home-grown lnvesLmenL groups Lo Lransform lnLo a large,
reglonal, and proLable lnvesLmenL holdlng company.
- AL Lhe beglnnlng, a suggesuon was made Lo form a group whose collecuve
skllls and neLworks could be leveraged Lo do whaL would be far more dlmculL
for an lndlvldual Lo achleve.
- 30 prospecuve members (lncluslve of Lhe orlglnal 7) were lnvlLed Lo lnvesL
kLS300,000 each, 29 accepLed - lnlual caplLal of kLS24 mllllon was ralsed. 8y
uecember 31, 2011 Lhe LoLal asseLs of Lhe company sLood aL kLS21.7 bllllon.
6
1. Case studies
- rofess|ona||se management: A hlgh quallLy full-ume compeuuvely recrulLed
managemenL Leam was recrulLed ln llne wlLh Lhe 2006 sLraLeglc plan.
- Devote substanna| qua||ty nme to manag|ng your |nvestment group: 8efore
engaglng full-ume managemenL, 1rans-CenLury's chalrman and vlce-chalrman
devoLed over 30 percenL of Lhelr ume Lo managlng Lhe aalrs of Lhe
lnvesLmenL group. Plgh quallLy servlce provlders-ln accounLancy, audlL, Lax,
company secreLarlal servlces, legal mauers and corporaLe nance-were
engaged from Lhe beglnnlng.
- Deve|op and |mp|ement a strateg|c p|an: Lver slnce 1rans- CenLury began Lo
develop sLraLeglc plans, Lhe lmplemenLauon of Lhese plans has been closely
monlLored and Lhe plan has been revlewed every 2-3 years.
Learnings from the Trans-Century case study
1. Case studies
7
- 8u||d |ong-term va|ue: 1rans-CenLury has conslsLenLly pursued a sLraLegy of
buylng, drlvlng value and holdlng sLraLeglc lnvesLmenLs.
- 1h|nk b|g: 1rans-CenLury has pursued an aggresslve lnvesLmenL expanslon
programme across Lhe Afrlcan conunenL. 1hey evolved lnLo a publlc company
and evenLually llsLed on Lhe nalrobl SLock Lxchange.
- Learn from fa||ure: Aer paruclpaung as a mlnorlLy lnvesLor wlLh mlnlmal
rlghLs ln Lhe CasLle 8rewlng kenya LLd. venLure LhaL folded aer only 4 years,
1rans-CenLury declded Lo focus on acqulrlng ma[orlLy sLakes ln companles
Lhey could acqulre full lnformauon on before decldlng Lo lnvesL, and conLrol
upon lnvesLmenL.
- 8r|ng the best dea|s to the group: 1here ls an unwrluen agreemenL among
Lhe founder shareholders Lo brlng auracuve lnvesLmenL opporLunlues Lo Lhe
auenuon of Lhe group.
Learnings from the Trans-Century case study
1. Case studies
8
- Leverage your cap|ta| base: 1rans-CenLury pursued an lnvesLmenL fundlng
approach LhaL relled qulLe heavlly on money borrowed from banks. 1hls
enabled Lhem Lo achleve a slgnlcanLly larger lnvesLmenL poruollo Lhan Lhey
would have, wlLhouL dlluung Lhelr shareholdlngs or commlmng addluonal
caplLal - whlch would have been Lhe case lf Lhey had relled only on share
caplLal.
- Cash |s k|ng: lL ls lmporLanL Lo focus on cash generauon (e.g. LasL Afrlcan
Cables ls one of Lhe nSL's besL dlvldend payers ln hlsLory). 1oo many
lnvesLmenL groups ue up Lhelr caplLal ln non lncome generaung asseLs (eg.
undeveloped ploLs of land) for Loo long.
- D|vers|hcanon: 1rans-CenLury has dlversled geographlcally (now ln over 10
counLrles), by secLor (power, LransporL and englneerlng) and by cusLomer
base and producL.
Learnings from the Trans-Century case study
1. Case studies
9
Trans-Century at a glance
Contro|||ng |nterest M|nor|ty stake
ende L|ectr|ca|,
2amb|a
Cab|er|es do
Congo, SkL


10
2. Why ?
11
Investing with a difference
Transforming investment groups into wealth creators
Proving that chamas are powerful drivers for
increasing members wealth in the long-term
Overcoming typical chama challenges
Poor investment choices
Lack of visionary ideas
Mismanagement
Doing business from a social context
is about
12
How does Retirement look today?
Cant afford to stop working
Continuing to work should be a
choice.not a necessity
Use pension (if youre lucky to
have one) to buy small
business.to subsist on
Significant reduction in regular
income
Parents become dependents of
children
2. Why
?
13
A familiar story..
?our lnvesLmenL group has been ln
exlsLence for Lhe pasL ve years.
AL Lhe beglnnlng, you were all frlends
LhaL came LogeLher, exclLed and
drlven by Lhe brllllanL plan Lo save
and lnvesL by conLrlbuung some
money every monLh, lnvesung
Lhls money over ume, generaung
a very good reLurn on your
lnvesLmenLs, and havlng a greaL
ume whlle dolng so.
2. Why
?
14
llve years down Lhe road, only a few
lndlvlduals (Lhe omce bearers) now bear
all Lhe load and responslblllLy of keeplng
Lhe lnvesLmenL group allve. 1he 'non-
omce bearers' lnvolvemenL and lnLeresL
ln Lhe lnvesLmenL group ls below
comaLose. 1hey do noL respond Lo any
emalls concernlng Lhe group. 8uL for
some lnLrlgulng reason, Lhey conunue Lo
make Lhelr monLhly conLrlbuuons Lo Lhe
group's bank accounL.
1here has been a Lendency, aL leasL
lnlually, Lo dlrecL member nanclal
conLrlbuuons Lowards passlve, low
malnLenance lnvesLmenLs such as llsLed
shares, Lreasury bllls, bonds and unlL
LrusLs. 1hey have over Lhe pasL year been
a blL advenLurous, and boughL Lwo acres
ln a place called 8oysambu, on Lhe
ouLsklrLs of nalrobl.
2. Why
?
A familiar story..
15
WlLhouL Lhe supporL of a sLrong
managemenL sLrucLure almosL all
your group's lnvesLmenLs have
been poorly evaluaLed and
monlLored. 1he reLurns on Lhese
lnvesLmenLs (lf you are even
aware of how Lhey have been
performlng) have been medlocre
aL besL.
?ou have dlscussed pursulng and
execuung much blgger lnvesLmenL
opporLunlues endlessly, buL
noLhlng has ever maLerlallsed.
?our group meeLs, Lalks, plans -
members go Lhelr separaLe ways
aer Lhe meeungs - nC1PlnC
PALnS - slx monLhs laLer you
meeL agaln, and Lhe cycle beglns
agaln..
The analysis paralysis treadmill
2. Why
?
A familiar story..
16
ApaLhy has been creeplng lnLo
Lhe group over Lhe pasL year.
Members are now sklpplng
Lhelr monLhly conLrlbuuons
more regularly, and Lhe
auendance record aL meeungs
conunues Lo decllne.
Cllques have formed wlLhln Lhe
group and each cllque ls sllenLly
blamlng Lhe oLher for Lhe
overall sorry sLaLe of aalrs...
2. Why
?
A familiar story..
17
We are social beings - peer pressure
works
Committed contributions - difficult to
withdraw
Signed an agreement
Capacity to raise more money &
invest in bigger projects
Combining several valuable skills
2. Why
?
18
(WhaL's ln lL for Me?)
! #$%&'(% '))*'+,-%. &%/*&)- 0$%& /1% 2'-/ 3 4%'&-567 4%'&- 80& /1% 9:;<
=1%-% >(*&%- '&% )0/ '.?*-/%. 80& ,)@'A0)
lndlvldual-Lype reLurns group-Lype reLurns
Why invest as a Group?
2. Why
?

19
Critical Failure Factors
1. Not shifting your mindset: short-term not
long-term; small not big
2. Not having a documented purpose and
vision (strategic plan)
3. Letting all the members, not a smaller
board drive the group: Not separating
ownership from management
4. Not professionalizing - management &
execution of investments. Relying on
office-bearers to do everything
2. Why
?
20
5. Only save/contribute what you
can afford to lose
6. Not respecting the distinction
between business and
friendship
7. Not formalizing / legalizing the
relationship
Shareholders agreement
Auditor, company
secretary (submit annual
returns)
Issue share certificates
8. Weak leadership
2. Why
?
Critical Failure Factors
21
Shifting Mind-Sets
Local direct investment Foreign direct investment
Long-term wealth creation Short-term get-rich-quick
Why not? Why?
Thinking Big Thinking small
[Business] Investment
holding companies
[Social] Investment clubs
To From
2. Why
?
22
Transformation: Beginning the Journey
Lstab||shment
Iormanon
& Structur|ng
Strateg|c
|ann|ng
Adm|n|stranon
& Management
Stage 1: Stage 2: Stage 3: Stage 4:
There are no shortcuts - follow the process
Invest heavily in the process - the outcome
will take care of itself
Lstab||sh
A va|ues-based
|nvestment
group w|th
||ke-m|nded
|nd|v|dua|s
Des|gn the
Appropr|ate,
accountab|e
structure
for your group
based on your
ob[ecnves
Create a v|s|on &
execunon p|an
accord|ng to the
group's r|sk
appente and
hnanc|a| goa|s.
Aa|rs of your
Investment Group
p|aced |n the
hands of a fu||-
nme, ded|cated
team of
profess|ona|s
2. Why
?
23
3. Structuring your
Investment group
24
Disproving Myth # 1: Equality of member
contributions
One man one vote is a political and co-operative movement
phenomena.
If you are a club, create a society. If you are looking to grow through
leverage and capital contribution then form a company.
Do you want to be a 10% shareholder of a KES10 million company or a
5 % shareholder of a KES100 million company or even a 1%
shareholder of a KES1 billion company?
As long as all members are employed at different levels in different
companies or own their businesses there will never be equality of
income.
3. Structuring your group
25
Democracy is a political phenomenon NOT a business
strategy!
Step 1: Identify skills of all members
Step 2: Align tasks to the skills of members
Step 3: Create checks and balances: BOD and committees
Not everyone should sit on the board or be involved in
decision making.
Disproving Myth # 2: Democracy
3. Structuring your group
26
Open for Business.....
We have started contributing,
what next?
Identify our structures: Too many
chiefs, too few Indians
Identify the skills of our membership
Identify who will manage our growth
3. Structuring your group
27
Features of the different entities
Quick
Registration
Government
Regulation
over
management
Own Land
in Entity
Name*
Can
distribute
profits
Personal
responsibility
for debts*
Self Help
Group
! ! ! " "
Society
! ! ! " !
SACCO
! " " " !
Partnership
" ! ! " "
Company
Shares
" ! " " !
Company
Guarantee
" ! " " !
3. Structuring your group
28
The beginning..
Why should individuals choose to form themselves as a
company?
They have a business agenda: To save and make money!
They want to have continuity for a long period of time
They want to have control over our assets
They want to borrow in the future
They want to create a tax shield on the income we will receive in
the future
They want flexibility in transferring our individual ownership
3. Structuring your group
29
Limited Liability by Shares
What should guide the decision to be a company limited by
shares?
To lock in contributions as capital
To lock in personal commitment to the groups ideals
To create an entity that is attractive to potential capital providers in
the form of debt capital and equity capital
To create an investment vehicle that can become a holding
company for other investments
3. Structuring your group
30
Do the group have businesspeople / entrepreneurs, qualified
accountants, farmers, lawyers, managers?
The group should bring in new members based on the skills that are
lacking rather than friendship.
Remember that well managed companies today have the right people
on the right seats.
Identify professional strengths of members
3. Structuring your group
31
Investment groups should form themselves into a Company with a
Board of Directors, Board Committees and Management
Guidance documents required:
Board Terms of Reference (board charter)
Investment Committee Terms of Reference
Audit Committee Terms of Reference
Management Terms of Reference
Calendar of meetings for Board and Committees
Management of the group
3. Structuring your group
32
4. Investment Planning
33
34
# Who Are We?
Evaluate
Group
Member
Dynamics.
Select the ideal
skilled
members to
lead the Group.
# Where are we Going?
Agree on a Common
Vision and Group
Objectives.
# How do we get there?
Establish the Investment
Plan (asset allocation) in
line with the Group
Objectives.
# Execution
- Create a Board of Directors and
Investment Committee.
- with members having
appropriate Skills and Experience.
- Build in-house admin &
management capacity (may start
by outsourcing).
- Select the ideal Service Providers.
34
4. Investment Planning
35
a. Who Are We?
Group Member Dynamics
$ Analysis Paralysis
$ Risk Profiling
$ Decision Making
$ Whats in It for Me
35
4. Investment Planning
36
b. Where Do We Want To Go?
Group Strategic Investment
Objectives
$ Our Common Goal (magic number)
$ The Equality Debate
$ Can the Group be my Retirement
Plan?
36
4. Investment Planning
37
c. How Do We Get There?
Construction of the
Strategic Investment Plan
$Asset Allocation
$Evaluating Investments
$The Use of Loans (Leverage)
$Sourcing for Deals
37
4. Investment Planning
38
Objective
Aggressive
capital growth to
achieve magic
number
Some liquidity for
short-term cash
requirements and
collateral
Asset Class
higher yielding
private equity and
real estate
investments during
15-year primary
investment period
Cash,
xed income&
listed securities
Asset
A||ocanon
30
k|sk
we|ghnng
Plgh
8alanced
Low
Low
8alanced
r|vate Lqu|ty target sectors:. lnvesL ln SLarL ups and fasL growlng companles
ln Agr|bus|ness, transport compan|es,(auxlllary serv|ces) and hnanc|a| serv|ces
targenng SMLs. A|so property |nvestment compan|es (10)
kea| estate target sectors: - |nvest on entry, ex|t on comp|enon or before,
artnersh|ps]co-|nvesnng. D|rect - s|te and serv|ce.
L|sted secur|nes target sectors: Growth and b|ue ch|p compan|es that w|||
prov|de both cap|ta| ga|ns and d|v|dend |ncome e.g. te|ecommun|canons compan|es
and banks.
40
S
S
20
The Strategic Investment Plan
39
d. How Do We Ensure We
Arrive?
Execution
$Create the Structures
$Role of the Board of Directors
$Role of the Investment Committee
$Features of an Investment Policy
$Role of Secretariat Services
39
4. Investment Planning
5. Management &
Execution
40
# Administration
Housekeeping -
doing the day to
day efciently.
# Management
Implementing the Strategic
Plan
# Execution
Transaction execution - from
inception to closure,
efciently and securely
41
5. Management & Execution
a. Administration
of Investment Groups
i. Convening and recording meetings
ii. Record keeping
iii. Accounting, banking, filing returns
iv. Transacting with professional service
providers
42
5. Management & Execution
b. Management
of Investment Groups
i. Investment portfolio management
ii. Sourcing good quality investments
iii. Performing high level due diligence
iv. Professional service providers
v. Preparation for board/committee meetings
vi. Positioning the Group as a preferred
investment partner
vii. Implementing your strategic plan
viii. Communication
43
5. Management & Execution
c. Execution
of Investment Transactions
i. Formalising your decision to invest
ii. Funding the investment: equity & debt
iii. Documentation confirming final investment
iv. Professional service providers
v. Investment closure checklist
vi. Legal considerations & risks
vii. The property investment execution process
44
5. Management & Execution
Reinventing your investment group:
Transformation to wealth creation
August 24, 2012
Tony Wainaina