/ 25 October 2007

Hedging South Africa’s future

Winner — Drivers of Change Award: Allan Gray

Best known as a firm of savvy asset managers, Allan Gray recently completed a smart financial manoeuvre, involving the personal generosity of its founder, to create a vehicle for BEE. When this transaction is combined with the intended staff-share scheme, 27% of Allan Gray will be black-owned.

Although he left South Africa in the late 1980s, Allan WB Gray, founder of Allan Gray and its offshore affiliate, Orbis Investment Management, has always held the people of his native country close to his heart. Documents dating back to the 1980s show that even before the term black economic empowerment was coined, Allan Gray was thinking about how to fund and develop entrepreneurs and to include black owners in his company.

Gray realised there was a huge need for education and training of previously disadvantaged South Africans and created a set of inter-related vehicles for people to realise their dreams through education and entrepreneurship.

In 2005 he launched the Allan Gray Orbis Foundation to offer young, predominantly black, South Africans the opportunity to study, attain skills and gain experience as future entrepreneurial leaders.

The Allan Gray Orbis Foundation funds Allan Gray fellows to pursue a university degree in most fields, including commerce, engineering and science. A fellow is recommended by his or her school and then put through a rigorous selection process. There are about 80 Allan Gray fellows and the foundation eventually hopes to have 500 fellows in the university system at any one time. This will make it the largest entrepreneurial training and support project of its kind in South Africa, training literally hundreds of potentially high-impact entrepreneurs.

The Allan Gray fellows mirror the demographics of South Africa; most are black and the balance are Asians, coloureds and whites. Each receives a full scholarship, including university and residence fees.

During study — and after they graduate — the fellows have access to a mentoring programme. Mentors are volunteer business leaders, entrepreneurs and Allan Gray executives. The focus of the mentoring programme is to increase awareness, improve academic performance, increase leadership skills, improve physical fitness, improve relationships and become more involved in community outreach.

It is in the foundation’s mandate to fund the postgraduate studies of those Allan Gray fellows who excel. Furthermore, the Allan Gray Orbis Fellowship at the Harvard Business School will fund the tuition and residence fees of any previously disadvantaged South African in financial need who gains admission to the two-year, full-time MBA programme.

Earlier this year Gray sold 18,9% of Allan Gray, a private, unlisted holding company, to E2 Trust, a broad-based ownership scheme empowered to finance graduates of the Allan Gray fellowship and social entrepreneurs. E2 paid R1,15-billion for the shares, using capital raised through Standard Bank.

When graduates of the Allan Gray Fellowship are ready to set up their own businesses, they can apply to E2 for seed capital at generous rates. This capital will be awarded to deserving applications on approval of a business plan.

The Allan Gray Orbis Foundation is funded annually by Allan Gray, which has committed to donate at least 7% of taxed profits in perpetuity — compared with the 0,5% target for CSI spend encapsulated in the Financial Sector Charter. The long-term nature of the Allan Gray Orbis Foundation’s commitment is further secured by Gray donating the R1,15-billion proceeds of the sale of his shares in Allan Gray Limited to E2 to the Allan Gray Orbis Foundation Africa Endowment.

This endowment will invest the proceeds for the long-term to reinforce support for the Allan Gray Orbis Foundation and related public benefit organisations. This additional support will be especially helpful in years when profits from Allan Gray Limited are low. The endowment is run by investment professionals to assist in the further capital appreciation of the fund.

The trustees of Allan Gray Orbis Foundation are Professor Jakes Gerwel, Futhi Mthoba and Mahesh Cooper.

Allan Gray also plans empowerment structures in Namibia, Swaziland and Botswana, where it has operations or clients. Gray will serve as a trustee and initial chairperson of the board of trustees of the endowment.

“Relative to their needs, my contribution is small, but it comes with the earnest desire to allow those South Africans less fortunate than ourselves to dream, if not for themselves then for their children, of realising through their own efforts and determination their full potential irrespective of their financial circumstances,” says Gray.

He is a former Harvard graduate himself. After graduating from Harvard, Allan was employed by the United States investment firm, Fidelity Management and Research, for eight years, the last four as portfolio manager of the then $500-million Fidelity Capital Fund.

On returning to Cape Town in 1973 Gray founded Allan Gray Investment Counsel, which was incorporated in 1992 as Allan Gray Limited.

During 1988 Gray relocated to London, from where he founded the Bermuda-based Orbis Group of Mutual Funds in 1990.

Gray and his wife have undertaken to fund the education of the children of all Allan Gray staff who earn less than R250 000 a year.

Children are funded from primary to tertiary level. Allan Gray’s largesse has been compared with that of Warren Buffett, another investment guru who engages in philanthropy.