Wall Street rookie turned SA bear
Bear Khumalo adopts what can only be called an inverted pyramid approach to empowerment and a maverick, high-risk approach to investments. His modus operandi is to focus on sectors that are out of favour with investors and thus “do not attract the usual [empowerment] suspects”, consolidate assets in these sectors and exit by selling when those sectors come into focus because of a change in fortunes. “Empowerment players are only taken seriously when they are in sectors that are expanding,” he says, explaining his philosophy.
So, five years ago, he was dabbling in coal, consolidating assets of collieries that were selling coal to Eskom.
He exited those investments at the onset of the current commodity price boom at returns of about 40%.
A failed deal that caught the eye was when he attempted to rescue ailing textile factory Rex Trueform, but lost the battle to Cape-based Brimstone. Khumalo concedes that he lost a tenaciously waged corporate battle and that the desire to keep the entity with a Cape-based owner was probably the clincher.
He recently struck a deal in his latest sector of choice, defence, through his company Black Star Group, where he purchased a 40% stake in a military services company, Fulcrum. His attraction to defence is owing to the evolution of military expertise in the struggle ranks; the sector has a pool of skilled black professionals. He sees this as an opportunity to buy relatively cheap assets and partner with good managers.
The most natural question to ask of an investor of his nature is what is the next big thing, the unfashionable sector that everyone will wake up to in a few years. He chooses labour brokers and employment agencies. As companies look to relieve themselves of stringent labour laws, they will increasingly outsource their labour requirements.
He firmly believes that sectors that have a heavy presence of multinationals, such as IT, pharmaceuticals or defence, should not make exemptions on those companies selling equity to local players.
“Absolutely not,” he says. “It is the most nonsensical argument I have ever heard ... every country has a right to define rules of participation in a way that benefits its people.” He sees the process of defining those rules as being the prerogative of the ruling, in whose values he was shaped.
Khumalo is the son of South Africa’s ambassador to the United Nations and chairperson of the G77 (a group of developing countries driving UN reform), Dumisani Khumalo. Born in the Vaal area, Bear, or Mandla to his parents, was raised in exile in the United Sates. He is nonchalant about receiving tertiary education there and cutting his investment teeth on Wall Street.
In his time back in South Africa, he has worked for Standard Corporate and Merchant Bank as well as running a R1-billion South African Ideas Fund before establishing his advisory business Siga Capital. Some of his early advisory work was for a group of unionists, who he declines to name, who wanted to take ownership of the now defunct New Africa Investments Limited.
He credits the African National Congress for creating the environment in which empowerment players operate. “We are here because of the [ANC] and we stand on the shoulders of giants.” He feels that the business transformation agenda is far from completed, noting that the unltimate aim is to “normalise” society. “If 90% of criminals are black and reflect the underlying population,” he says “then 90% of CEOs on the JSE must be black. It is as simple as that.”