Absa Shuts $6 Billion Mutual Fund, Sparking Spin-Off Speculation

The closure of South Africa’s biggest money-market mutual fund has rekindled speculation that Absa Group Ltd., which oversees it, is preparing to sell its wider asset-management unit.

South Africa’s third-largest lender said this week that it had decided to unwind the 86 billion rand ($6 billion) fund, citing risks to the bank due to clients’ mistaken belief that investments in it would enjoy the same degree of safety as cash in a savings account. It gave investors until July 1 to withdraw funds, with the option of moving money into deposits or other financial products.

The lender has been considering the sale of Absa Asset Management (Pty) Ltd. for some time, said Warwick Bam, the Cape Town-based head of research at Avior Capital. It was planning to restructure the unit ahead of a possible sale to a group of black investors, Business Times reported two years ago.

“Absa could be simplifying the asset-management entity by closing the fund, decoupling it from the bank and facilitating a sale,” Bam said. “The switch from a unit-trust fund to a deposit or cash-savings vehicle could be beneficial for Absa bank as it could increase lending capacity.”

‘No Sense’

In an emailed response to questions, Absa said it could not comment on speculation around potential corporate action.

The explanation offered to customers about why the fund was closing “does not make sense,” said Magnus Heystek, the Johannesburg-based director of Brenthurst Wealth Management.

“It comes down to margins, and quite simply the bank will make more money with fixed deposits than it would from the fund,” Heystek said. “No money-market fund in South Africa has ever gone belly up. Many banks have.”

Absa said most of the money would probably not be channeled into deposits as large institutional investors did not have that option.

“We expect some of the money to become Absa deposits, but since clients have full flexibility of choice, it is too early to comment with authority on the expected outcome of the closure,” it said.

Absa shares slipped 0.7% by 3:27 p.m. in Johannesburg, compared with the 0.7% gain for the benchmark index.

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