KEY QUESTIONS

KEY QUESTIONS 11 DECEMBER 2017

WHAT IS OLD MUTUAL’S VIEW ON BITCOIN? IZAK ODENDAAL, INVESTMENT STRATEGIST AT OLD MUTUAL MULTI-MANAGERS WAYNE SOROUR, HEAD OF OLD MUTUAL INTERNATIONAL SA ZAIN WILSON, INVESTMENT ANALYST AT MACROSOLUTIONS

11 DECEMBER 2017

WEALTH INTELLIGENCE WEEKLY KEY QUESTIONS

Nakamoto (probably a pseudonym), Bitcoin is a “purely peer-to-

WHAT IS OLD MUTUAL’S VIEW ON BITCOIN?

peer version of electronic cash” allowing online payments “to be sent directly from one party to another without going through a financial institution”. It relies on an emerging technology known as blockchain, a digital, decentralised and public ledger. Blockchain advocates regard it as a more efficient, cheaper, quicker, safer and transparent alternative to traditional transacting. Transferring

The media coverage and views around Old Mutual’s role in

money is one of many applications of blockchain technology.

Bitcoin’s growth continues to be the subject of many articles.

WHY ALL THE HYPE?

BusinessLive’s article (dated 23-24 November) headlined “Bitcoin

The hype is driven by three factors:

diary: Hey, ho and up she rises!” led this sentiment stating that,

1. As a result of Bitcoin’s increase in value, it’s attracting more

among others, Old Mutual’s gold and silver fund ($220m) allocation

attention and vice versa. On 3 February 2014 the Washington

of up to 5% to cryptocurrencies was one of the main drivers of

Post published an article showing a positive correlation

its significant recent price increase. The same article with multiple

between a surge in Bitcoin prices and media coverage. They

credible business titles was also published in Business Day, Sake,

tracked the currency’s leaps over four periods and in each

Moneyweb, Netwerk 24 and Smile FM to name a few.

of those there was a clear increase in media coverage and

In the past week, the Financial Mail of 7 December delved into

growth in the currency’s price; 2. Bitcoin does appear to be a fundamentally useful technology.

Old Mutual International’s role in the rise of Bitcoin. They wrote

Blockchain technology will likely reshape global financial

a balanced piece, highlighting the views of Dave Mohr and Izak

(and other trust-based) processes, but this is no guarantee

Odendaal of Old Mutual Multi-Managers (OMMM) that Bitcoin

that it will maintain a leading position. Remember MySpace

is in bubble territory. This past weekend, Bitcoin touched a record

came before Facebook, eBay was dominant before Amazon,

USD17 000, from USD4 000 when OMMM first published the

Hotmail used to be more popular than Gmail and at least

Key Question.

five major search engines came before Google’s domination.

Zain Wilson of Old Mutual Investment Group(OMIG) is also of

3. Bitcoin is seen as an alternative that is outside of government

the view that Bitcoin is in a bubble because of the meteoric rise

control and interference. Many investors lost faith in traditional

in prices and popularity, participants who are mainly speculators

financial institutions and central banks managing the system

who borrow to fund their activity and a technology that is difficult

after the global financial crisis.

to measure and assess.

SO WHAT IS OLD MUTUAL’S POSITION ON BITCOIN?

Elize Botha, MD of Old Mutual Unit Trusts (OMUT), has consistently advised retail clients to be cautious of Bitcoin and re-iterated both

Old Mutual Multi-Managers and Old Mutual Investment Group

OMMM and OMIG’s position with regards to investment strategy

will not invest in cryptocurrencies at this stage for the following

which is that Bitcoin and other cryptocurrencies are currently

reasons:

excluded from being considered as an appropriate investment

1. There is no legislation governing cryptocurrencies and

opportunity.

therefore no protection or recourse for investors. According

The Financial Mail article highlighted that the fund manager for

to National Treasury, cryptocurrencies are not defined as

Old Mutual Gold and Silver fund, Ned Naylor-Leyland, is a big

securities in terms of the Financial Markets Act (Act No. 19 of 2012).

believer in Bitcoin and cryptocurrencies and this could still be

2. Old Mutual cannot reasonably build conviction in future price

confusing for investors.

expectations due to the speculative nature of Bitcoin. Fiat

It’s therefore important for us to revisit this subject, which both

currencies can be assessed by their fundamentals (economic

OMMM, OMIG and OMUT have addressed with consistent

growth, inflation, monetary policy and governance) but

clarity over the past couple of months, to re-iterate OMMM,

Bitcoin’s intrinsic value is almost impossible to pin down.

OMIG and OMUT’s position in relation to current noise in the

While supply is known because limited coins are created at

media and market.

a rate that can reasonably be assessed by mining ‘hash’

WHAT EXACTLY IS BITCOIN?

power and transaction rates, demand varies widely creating

Bitcoin is the best known of the so-called cryptocurrencies, although

the characteristic volatility in Bitcoin’s price - subject to the

it is only one of thousands. According to its creator, Satoshi

risks discussed above.

2

11 DECEMBER 2017

WEALTH INTELLIGENCE WEEKLY KEY QUESTIONS

3. Bitcoin pays no interest and future returns depend entirely on price increases, instead of compounding income over time. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” This is a huge disadvantage for investors.

different regulations for their collective investment schemes and ETFs. The funds offered on the OMI platform are life wrapped and not subject to the regulations governing collective investment schemes in South Africa.

WHO IS THE TARGET MARKET FOR OMGI?

In summary, it is an exciting technology, but not an exciting investment opportunity.

The fund was added on Old Mutual International’s range of Research

HOW CAN OLD MUTUAL GLOBAL INVESTORS (OMGI) TAKE AN ALTERNATIVE VIEW IF THIS IS THE POSITION?

Funds aimed at discretionary investment managers (DIMs) e.g. CAT

OMGI is part of the Old Mutual Wealth North (UK) business which Old Mutual South Africa (OMSA) has no control over, see organogram.

SO, IS THE MEDIA’S VIEW THAT THE SURGE IN BITCOIN’S PRICE IS HELPED BY OLD MUTUAL TRUE?

II managing portfolios for advisers and/or clients. It’s a very specialised fund for the sophisticated investor and not aimed at retail investors or advisers.

OMMM and OMIG’s position on cryptocurrencies relates to the South African business only. The Old Mutual Global Equity Fund is managed by Old Mutual Global Investors (OMGI) on behalf of Old Mutual Investment Group South Africa (OMIGSA). The UK has

There are only three investors in the fund totalling US$16 000 (R224 000). Therefore, it is highly unlikely for OMGI to be the driver of the rise in Bitcoin prices.

SIMPLIFIED LEGALOLD STRUCTURE OF OLDSIMPLIFIED MUTUAL GROUP MUTUAL GROUP LEGAL STRUCTURE Old Mutual plc

OM Group (UK) Ltd

Old Mutual Wealth Management Limited Old Mutual Wealth Holdings Limited Old Mutual Investment Platform*

Old Mutual Global Investors Holdings Limited

Old Mutual International Isle of Man Limited

Intrinsic Financial Services Limited

Quilter Cheviot Holdings Limited Quilter Cheviot Limited

Old Mutual (South Africa) Holdings (Pty) Ltd

OM Latin America Holdco Limited

Aiva Holding Group S.A.

Old Mutual Investment Group Holdings (Pty) Ltd

Old Mutual Investment Group (Pty) Ltd

Other subsidiaries: Mexico & Colombia

Old Mutual Property (Pty) Ltd

Old Mutual (Netherlands) B.V.

Old Mutual (Bermuda) Holdings Ltd

Old Mutual Group Holdings (SA) (Pty) Ltd Old Mutual Global Investors (UK) Limited

Old Mutual Life Assurance Company (South Africa) Ltd

Nedbank Group Limited (54%)

Old Mutual Wealth Proprietary Limited

Old Mutual Emerging Markets Limited

Mutual & Federal Investments (Pty) Ltd

Old Mutual (Africa) Holdings (Pty) Limited

Old Mutual Insure Limited

Other subsidiaries: Namibia, Kenya, Malawi, Swaziland, Zimbabwe, Botswana, Nigeria, Ghana

Nedbank Limited

Please note this is a simplified structure as at 31 May 2017 and does not show the full legal structure. * Old Mutual Investment Platform comprises three operating companies: Old Mutual Wealth Limited, Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Life & Pensions Limited

Key Holding Company

Operating Company

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