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With edgy branding and a highly unusual approach in South Africa of building from the ground up in public (i.e. while listed on the JSE), Altvest is playing life on hard mode. CEO and founder Warren Wheatley knows this, yet he remains steadfast in his belief about what they are building.

With no shortage of critics (and a few negative clickbaity articles in the press along the way), Warren approached me to have a no-holds-barred conversation with him about literally anything that I felt was pertinent to Altvest investors. I also canvassed my followers on platforms like X to get a sense of the questions they wanted me to ask.

The result? Over an hour of hard-hitting discussion on topics ranging from the branding strategy and underlying assets in Altvest through to the concerns in the market around remuneration and the related party transactions. As balanced and authentic discussions go, you won’t find better than this.

As always, the Ghost Mail platform is here to help you form your own view about what’s out there in the market. Listen to this podcast and decide for yourself whether Warren and the Altvest team will make this a success or suffer a failure. Remember to speak to your financial advisor, as nothing you hear on the Ghost Stories podcast should be seen as advice.

Altvest Capital is a juristic representative of Altvest Wealth, FSP number 45810.

Read the transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. And I always say that my podcasts are going to be interesting, and of course I certainly believe that they will be. But this one I think is particularly juicy and it features Warren Wheatley, the founder and CEO of Altvest.

Warren reached out to me to have what he described to me as a “no holds barred discussion” about what has been built at Altvest, what is being built at Altvest – and of course that’s an opportunity that I couldn’t say no to because it is such an interesting group. It has had quite a lot of attention in the media, both positive and negative at times. And I think this is a great opportunity for the audience to just listen to Warren talk through the top-of-mind issues that I’ve seen come up pretty consistently on platforms like X, certainly when people have contacted me directly about the company, etc.

So I just want to get some disclosure stuff out the way, Warren, and then I’ll say hello to you formally. So first off, I just want to make it clear that I do not own any shares in Altvest, either ordinary or preferred. I have no business relationship with Altvest beyond literally this podcast. Altvest has paid the standard market fee for my time in preparing, recording and distributing this podcast, so no special deals here or anything of the sort.

And as I say, the specific mandate was: no holds barred, ask the tough questions.

So I think to start with, well done to you, Warren, for being willing to do this, because there’s not a lot of listed company execs who are willing to do this kind of thing. Much respect for that and I’m certainly looking forward to this conversation with you, so welcome.

Warren Wheatley: Cool. Thanks, Ghost. Let’s see if we can change that shareholder status of yours by the end of this.

The Finance Ghost: There we go. Yeah, let’s see what we can do. And even if we can’t do that, let’s at least learn more about Altvest. I think that’s a great goal for this show.

So the first few questions are going to be focused on getting a better understanding of basically what it is you have built and why you’ve built it this way. And then some of the questions later on will deal with remuneration, related parties – this is some stuff that has come up in the media, so we’re not going to shy away from dealing with that.

But let’s start with understanding more about what you’ve built. And I’ve got to say, you are someone who clearly likes to play life on hard mode a little bit, because I think liquidity in the South African listed space is pretty notoriously bad, right, for investment holding companies, and especially small ones. And then investment holding companies trade at a discount on the JSE as well. So you’re kind of sitting in that Venn diagram. And on top of that, your structure is quite complex, right? You’ve got ords, you’ve got prefs. It almost feels like you saw a hornet’s nest and kind of ran towards it. Why did you not just build this in the private space? What made you come and do this in public? For want of a better description.

Warren Wheatley: So what are we trying to do is create an alternative ecosystem where SMEs can access capital, right? And for that to be successful, a spotlight needs to be shone on the problem, but moreover on the solution, right? And so this isn’t something I could do covertly, or at least I don’t think so. And I needed people, not just in South Africa, but internationally, to understand what we were trying to do and why we were trying to do it.

And the reason is simple, right? South Africans largely are still systematically excluded from large parts of our economy. Like guys like EasyEquities have solved big parts of that problem with fractionalised share ownership.
Venture capital, private equity, private credit, property – it’s still largely out of the realm of possibility for most South Africans, right?

The flip side of that is that you’ve got SMEs which just aren’t able to access affordable credit. Now, I’ve chosen those words carefully. If you Google SME funding options, you’ll get a plethora of opportunities. I’m not going to name any of my competitors, but there’s literally hundreds of them, right? And you can go online. Some will pay you out in three hours, others in 72 hours, some 70 seconds. There’s a whole whack of options. What they won’t give you is affordable funding, and that’s what we try to solve.

And a lot of our complexity was required to deal with that nuance. If you’re comfortable paying 36% per annum, go for the option of getting a loan paid out in three hours or 24 hours. You can get that done. But our nuance, our complexity and the sophistication of the capital structure was required to deliver an affordable lending product.

The Finance Ghost: Thanks, Warren. So that does give an indication. My sense of it is there’s a lot of ambition there. There’s definitely a desire to build something of scale, something substantial, and something with a lot of different elements to it for better or worse, not an easy thing you’ve embarked on, as I said, a little bit of playing life on hard mode. But it’s not easy to build things, I will absolutely say that.

If we just go back to 2022 – and this is the second question I wanted to ask you – why did you start on the Cape Town Stock Exchange? Do you regret that? Do you wish you had just gone straight to the AltX? It seems like what happened there might have maybe set you back a bit, maybe some unnecessary costs as well?

Warren Wheatley: So I don’t think I have any regrets, right? I’ve made mistakes, lots, miscalculations, missteps. The CTSE I don’t regret. Not at all. In the first instance, we were – our goals were congruent. They wanted to be a marketplace for SME development and we wanted to be a vehicle for SME development. So it was a natural fit.

It also felt like a safer space. For whatever reason, the JSE just seemed intimidating at the time and the CTSE seemed like a safer space to venture into. And so no regrets. And you know, honestly speaking, our liquidity, we enjoyed on the – I use the word enjoyed, of course, loosely – that we enjoyed on the CTSE is very similar to what we enjoy on the Johannesburg Stock Exchange.

The Finance Ghost: “Enjoyed” being the same way the Italians enjoyed playing rugby against the Springboks recently. That kind of “enjoyed”!

Warren Wheatley: Precisely! Yeah, that’s a good way to think about it. So no regrets. The CTSE has its place.

You know, there’s an ecosystem that needs to develop around this infrastructure. It is happening. It’s happening very slowly. And these ecosystems do take years to develop. And so I think each place has its – each bourse has its place in the country. They serve different purposes and I think both need the support of the markets. So no regrets at all.

The Finance Ghost: And seeing each step as a learning journey – again, it’s quite easy when people haven’t built something, they always – you can always look from the outside in and you can always look with the benefit of hindsight and say, oh, that didn’t work. It is harder when you’re building. I mean, I’ve experienced that myself, so I am partial towards entrepreneurial founders who are trying to do something different. If we all had hindsight, no one would ever make any mistakes, right? Or perfect hindsight.

And speaking of perfect hindsight, and maybe this is something else where I feel like it’s something you’ve continued to lean into actually, as opposed to saying maybe we need to tone it down. And that’s very much your edgy, quite loud I guess, overall branding, I mean, it’s completely different to anything else that’s listed on the market. Lots of use of kind of retro, almost comic-type stuff. And I’m obviously a bit partial to that given that I use a cartoon purple ghost. I’m a fan of doing stuff that stands out and is a little bit different. Definitely.

But do you think that has possibly opened you up to more scrutiny? Has there almost been a dark side to that where you kind of went with the billboards? You’ve done a lot of quite alternative marketing. I’ve seen adverts in magazines that were referenced in your annual report for your Orient Opportunities Fund. In magazines you might not expect to see that kind of thing like Getaway, etc.

The criticism I guess would be is, are you seeing enough ROI from that or would you go back and change it?

Warren Wheatley: From a marketing perspective, we’ve made mistakes as well. I think the first mistake, I must admit, is that we mistook brashness for boldness initially. I think we fixed that and I think we’re more approachable now – as loud, but with a softer nuance behind it, right? The brashness almost seemed like we were coming up against everyone and everyone was establishment and Altvest was anti-establishment. I think we’ve sort of fixed that.

From a marketing perspective, I don’t know what works and I don’t know what doesn’t work. What I do know is that I’ve got to try different things and I’ve got to keep trying different things and keep moving the puck around the table.

And so we advertised in Rooi Rose. We advertised in – because why shouldn’t Mrs. Viljoen from Potchefstroom be able to buy shares in Altvest? Why shouldn’t she know about it? We advertised in Getaway because on your first trip to Hong Kong, why should you not think about Altvest having a presence there or Altvest giving you asset exposure to there? And so we look at the world very differently when it comes to marketing. The days of just doing Financial Mail or Business Day or whatever the case is – I’m not sure if that works.

I don’t have models to look at. I don’t have examples to think about or recipes to follow. So we’re charting our own path and I’ve got to try different things.

The colour is there for a very specific reason, so that it pops out. You know, you start noticing how littered Johannesburg is with outdoor advertising the moment you put one up. And our colours, the comics, I think it gave some kind of relief to viewers because it was that different. It was that engaging and it drew your attention. I hope sincerely it didn’t cause any accidents or anything like that, but it certainly worked.

As far as exposure is concerned, I don’t want to sound cliched, but there doesn’t seem to be such a thing as bad exposure. We want people to be talking about our brand. We want people to be talking about the opportunities, and we want people to be debating the merits of what we’re doing around the dinner table. And if I can achieve that, if it’s your Uncle Sarel who read about it in SA Rugby talking about it to Mrs. Viljoen who read about it in Rooi Rose, then so be it.

I don’t know how to measure ROI from media. If we measure it whether there was an increase in liquidity, then I guess no. Is there increase in Twitter activity or X activity? Yes. My Facebook stories get watched a lot more. So, you know, there’s another green tick. But it’s hard.

It also doesn’t all happen at once. It’s a cumulative, accretive process and I guess I’d only know the outcome of it in months or years, or never. I don’t know.

The Finance Ghost: I think that’s very fair. So I think what you’re building is basically a B2C play more than a traditional kind of B2B play. And that means you’re trying to attract a lot of different investors to come into the system. And that is expensive from a marketing perspective. It is much harder in terms of marketing spend than trying to go and attract a small number of major institutions. And I think your point around some of the brashness versus edginess I think is well made and I think it’s good that you can acknowledge that. I agree with it, for what it’s worth. I do think that it was off-putting for a lot of more serious investors.

I think at one point I wrote a piece for the Financial Mail about Altvest and I think in there – and I know you read it and liked it and appreciated what I put in there and how balanced it was – and one of the points I made was the original branding was at risk of appealing to people who were looking for entertainment perhaps more than a serious investment. And those people unfortunately are on average not going to open their wallets and put in a lot of money, which at the end of the day is what you actually need long-term. So I do think there’s been some maturation in what you’re doing, which is good.

And again, maybe I’m biased in that regard, but when it comes to colour, when it comes to the use of unusual branding, I mean clearly I’m a fan obviously because of how I’ve done The Finance Ghost to try and stand out in a sector that is just filled with very serious publications. The content is serious, it doesn’t always mean the branding needs to be as serious or at least as old fashioned. And it seems you certainly subscribe to that as well.

Warren Wheatley: Yeah, so Ghost, you’re one of the models I look at closely where you can inject a little bit of fun into a serious topic. EasyEquities is another one. I don’t subscribe to the type of stuff that a lot of our big competitors do. But you know, they may have found their niche, showing a happy family, thrilled about life because they’ve bought X insurance company’s lifelong annuity and that kind of stuff. They’re happy families, old people on the beach enjoying retirement. That’s not us. We want to show the gritty, colourful side of life and that’s more the approach we take.

The Finance Ghost: Yeah, I like it. So I think let’s move on from the branding. That’s a nice point that we’ve covered off now.

I want to talk about a couple of the assets you already have in the system, specifically where you started. So the first two are Umganu Lodge and Bambanani. So that’s your A and your B prefs, respectively.

Now from what I read in your recent financials, the latter seems to be really struggling at the moment – that’s Bambanani. Significant losses in each of the past two years. Actually a real pity because as a dad of young kids it feels like it’s a good concept. It is what it is.

Umganu Lodge seems to have made a small loss in each of the past two years, so I guess critics could argue that it’s a bit of a gimmicky asset. There doesn’t really seem to be any yield on it, even though it had a big fair value uptick in the last year.

I guess the question really is, what do you think the contagion risk is for the whole thing you’re building if one or both of those assets turns out to be a major disappointment, where people actually lose money, heaven forbid one of them actually goes to zero. This stuff happens. That’s the reality with SMEs, right? They don’t always work.

So how have you thought about that contagion risk across what you’re building if one of the Altvest-backed assets falls over?

Warren Wheatley: Let me quickly address the two assets first and then I’ll get to the contagion part of it.

So Umganu was – it’s a piece of property, prime property, along the Sabi River. It enjoys one of the best attributes an asset can have – and we’ll cover this more when we get to Bitcoin – but that characteristic is scarcity. It is scarce to be able to buy land on the border of the Kruger National Park, even more so along the Sabi River. This was never going to be a Holiday Inn or City Lodge. The place needs time to breathe, it needs time for maintenance. But when we get guests in, we properly turn revenue, right?

So where people are going to make money on this type of asset, and this is deliberate, by the way, is on the capital gains of the asset. And we’ve delivered that. The thesis has played out. We acquired the asset at a valuation of R30 million.

Late November last year – I’m talking November 2024 – there was a transaction that Altvest was invited to where transactions or shares in the lodge were sold at a valuation of R46 million. So that’s an increase of 53% from two and a half years ago. We’ve delivered way more than even our most positive projections were in our material sent to investors.

So this isn’t going to pay an 8% dividend. It’s not going to even pay a 2% dividend. What it’s going to do is give you a very big capital gain when we eventually sell the lodge to some German tourists who can’t find a lodge anywhere else in Africa, and wants one on the Sabi River. So that’s Umganu. It’s done exactly what we said it would do. So what it says on the tin, it’s done exactly. And you can go back onto our website and download our first investor materials. We said exactly that – that there’d be no cash yield, but what we do expect is the capital value of this asset to appreciate and to appreciate significantly.

Why didn’t I take an opportunity to take some profits in November? Number one is I visit there often, partly because my kids are safari nuts, but also to keep an eye on the asset. And what’s happening in that area is incredible. You’ve got airports that are developing direct flights from Germany and Russia and those kinds of things. You’ve got developments that are sprouting up all over the place. The estate that Umganu is housed in is building a world class hotel with padel courts, spa facilities, tennis courts, swimming pools, you name it – it’s going to be the best safari resort on the continent, right? And that is going to push the price of that land up.

The NAV of that went from R1.50 per share to R2.20. That’s what that share should be trading at. And I would urge investors to not sell it for a cent less than R2.20 per share. I think it’s like at R1.30 or something silly like that, at the moment, it’s just ludicrous. Those are the vagaries of the market, I can’t fix that. What I can tell you is that every valuation is hinged to a real-life transaction where professional investors have paid real currency for an asset. And the last trade on Umganu was at R46 million as an asset.

Bambanani, on the face of it, it looks like it’s struggling and it is a difficult business and so it always feels like you’re on a hamster wheel. But since our transaction, we’ve opened a new store in Bedfordview and it’s exceptional. The store is amazing. Families love it, it’s always busy, it’s just too small. We needed double the size, but we were limited by the size of the plot.

We’ve bought and are renovating right now, a children’s theatre and bioscope in Melville. So that’s going to be a place where you can watch all eight Ice Ages back to back, mom can have a cocktail, dad can have a beer and the kids can be put away for six to eight hours, have lunch as a family, have dinner as a family and that kind of thing. It’s also going to revitalise Melville.

And so I guess what I’m saying is operational losses are actually more accurately described as investments into the growth of the business. We’ve established Bamba’s Kitchen, which supplies all of the other stores. We’ve created brands – Bambanani and I’ll potentially send you, if you can accept it, a jar of granola that we make. It’s exceptional. I mean, the ratio of nuts to other stuff is just insane in this jar, right?

The Finance Ghost: The good news is I don’t like granola, so I can accept it, Warren, because it’ll never influence me in either direction. Pizza is a much more dangerous offer than granola, I can tell you.

I am, for what it’s worth – just, on the Bambanani Bedfordview website, it does look fantastic. That’s why I say I want to see it succeed. Because as a dad of young kids, it’s quite rare – I’m not sure about the bioscope for the day personally – but to sort of take the kids to a very family friendly restaurant with a proper play area – Spur is the only gig in town in Cape Town. Joburg has more than that, but it really does – yeah, I mean, it’s important, right.

Warren Wheatley: Not to knock Spur, because they’re the original arbiters of this idea, right? But when you go to Spur, you’re literally throwing your kids into like this cage and they’re fighting bigger kids, they’re fighting viruses, they’re fighting bacteria and it makes them tougher, stronger individuals. Bambanani’s got a softer touch. Yhey’re doing face painting, they’re making pizzas, they’re baking. Yes, there are jungle gyms, there are bigger kids, there are viruses – all those things are there. But it’s a lot more open, friendly and people love it.

Melville’s difficult. Melville’s a lot like Woodstock in Cape Town. It’s this cool, edgy place. Probably not the best place for a family restaurant, but we’ve got deep roots there and deep roots are difficult to untangle and get out. The business has been there 15 years and so it’s part of the Melville architecture, the Melville DNA.

And we are looking at other venues, not to move that one too, but to expand the footprint. Cape Town is top of the list in terms of where else we want to be. Yeah, we’d probably do it Constantia, Hout Bay, somewhere around there.

The Finance Ghost: Cape Town’s begging for it. Bring it to Cape Town!

And maybe if we can then just touch on that contagion point if it doesn’t work. If something goes wrong with Umganu, maybe you don’t get the capital uplift, what does it mean for ACOF? What does it mean for ACOF if the fourth asset comes in and it doesn’t work? There is some contagion risk, right? I mean, that’s my perception.

Warren Wheatley: From an Altvest Capital balance sheet, yes, so for our ordinary shareholders, but for the specific investors into each of the different ideas, none at all. Because they’re ring-fenced. And even in the event of liquidation of Altvest, their assets will be used to satisfy their claims first.

Of course, any particular decision Altvest makes affects Altvest investors. So if that’s what you mean by contagion, then yes, it exists and always will. That’s no different to any other investment holding company. But you know, if Umganu burnt to the ground and we found out we missed four premiums on our insurance policy and it’s gone, yeah, it will hit Altvest, right? As so with any other asset.

The Finance Ghost: Yeah, fair enough. Okay. I think let’s then move on to what I perceive to be the key asset, at least at the moment, and that is your Altvest Credit Opportunities Fund or ACOF. And for me, that is definitely the most interesting thing that you’ve got right now.

Just a couple of key points that I just want to pick out, that I got when I read about it and when I did the research for this and then we’ll talk about it a bit more. So something I picked up is it looks like the debt that’s coming into that thing to fund the book is coming in at approximately prime plus 2%. The fund itself is targeting an internal rate of return, or IRR, of around 26% to 28% for its equity holders. That’s about double the return on equity of large local banks, so quite an ambitious IRR. It’s quite typical for what I’ve seen private equity companies in South Africa or investors aim for many times, but quite rarely achieve, so it is an ambitious target, but it’s a good one.

The valuation sensitivity is quite amazing actually. And again, this is good disclosure in your numbers. So one of the things I picked up in the recent report is the fair value of that fund decreases by R55.7 million for every 1% decrease in loan pricing. Now, I assume that means every 100 basis points decrease in pricing. And for reference, the total fair value as you had it, was R222 million. So that roughly means it would shed about a quarter of its value for every 100 basis points of pricing pressure that came through on the book, so quite vulnerable in terms of the value to macroeconomic changes and more competition in this space. It’s one of those very highly leveraged, sort of thin layer of equity – and if it does well, it does very well, and if it does badly, it can do very badly – one of those typical kind of plays.

And you very much have, I think if I can say, bet the farm on this asset, I think this is the one that has to work. The other two, it would be nice, but this is the one that’s got to work.

Why do you think this has a moat? First question. And I guess just how big can it get? And in the process of getting big, how do you stop it potentially going outside of mandates or chasing assets that maybe aren’t that appealing?

I’ll give you the one example and then I’ll let you answer. I saw in the pipeline of R684 million at the time of your report, there was a reference to an infrastructure project of R120 million that you’d put a proposal in for, which obviously stuck out to me as being very different to investing in a whole bunch of SMEs. When I think of that kind of fund, it kind of sounds like the hairdresser down the road needs some capital and there’s a system to lend to that hairdresser, infrastructure investment, something very different. So why does this thing have a moat? How big can it get and how do you protect it on that journey?

Warren Wheatley: My first response would be that a moat is the fact that the funding gap for SMEs is estimated to be at least R300 billion in the country, right? That’s in South Africa alone. If we expand it to Africa, the number is probably 20 times that. And so there’s more than enough room to play.

What we’ve done though, is that, and I mentioned this earlier, you approach your bank and you ask them for working capital funding, an overdraft, any type of funding from the bank, once they’ve kicked you out of the room, you go into Google and you type in SME funders, right? Your next best bet is a loan provider that’s going to give you a rate – the cheapest, absolute cheapest you’ll get in the market, excluding ACOF, is around 24%. But most cluster around 30% to 36% per annum. And these are done mostly on a monthly basis, so around 3 to 4% per month, right? That’s your next option, if you need money.

The cool thing is you can get it quickly. Some will do it in three hours, others in 24 hours, some in 72 hours. We don’t believe you can assess credit in that amount of time. And those that do aren’t actually assessing credit. They’re pricing the entire book at the same price. So you go there and you get a loan at 36%, you work, you pay it off and you get by.

That’s not what we do. My average loan, and this is on all our documents that we submit and publish on our website, our average rate is between 18% and 19%. We are categorically 40% cheaper than your next best option in the market. And moreover, you will sit with a team of analysts who will work out a plan to make our loan fit into your cash profile, right? And so that’s our moat: our moat is we’re not going to compete on speed of deployment, we’re never going to assess your application in 72 hours, it’s going to take six days or six weeks, and it will take what it takes – but you will get a structured product that actually provides value to your business and gives you, as an entrepreneur, a fighting chance.

I’ll give you an example. We had an entrepreneur who applied for funding who runs a nursery school. Now, this would resonate with you. And I chose this specifically for that. So they told us that they receive their last payment middle of December, end of November, and they don’t hear from parents from a cash flow perspective until end of Feb, early March. I’m not suggesting that’s when you make your first nursery school payment, but that’s the reality of most South Africans. So she told us for four months, with best intentions, I can’t make a payment on this facility. And so what we did was we sculpted a loan that runs from March to November, has a window, period of relief, and then kicks in again, right? If you ask your bank for that, once the guys got off the floor laughing, they would kick you out the building.

The Finance Ghost: There’s no chance. I can confirm, there is a 0% chance you will get that from a traditional bank as a small business. Literally nought.

Warren Wheatley: No one does that. And we do, though.

Another example is there’s a family in Cape Town. This is one of my favourite stories. For three, four generations, they worked on boats as fishermen. The new generation had high ambitions, approached us and said, I want to change my family’s trajectory. I want to buy a boat, and our family will work this boat and we will change our family’s legacy.

We gave them a boat. They are now business owners. They own boats. They fish octopus and lobster. And for the first time in four generations, they are now business owners as opposed to fishermen who work on a boat, right? That’s like actually one of my favourite favourite stories. And that’s the kind of stuff we do.

But the point around the sensitivity around the model is that I could deploy my entire book out at 36%. I could. If you think that’s impossible, I could deploy double my book out at 26% or 24%. But I’ve opted to deploy that book at around 18%, 19% or 20%. I won’t give you a loan at more than 20% per annum. And the math for me is simple, right?

You’ve seen I disclose my borrowing cost. It’s prime plus two. I add on my asset management fee, I add on the fund’s operating cost, which is around 2% per annum, and then I have to, for my investors, add on a potential risk of default, which is around 3% to 5%. And I charge you no more than those basics that I have to, to be an investable prospect.

The idea is I want you to have as cheap access to capital as I can possibly fathom or construct. And if that makes my model sensitive or subject to vagaries, then so be it. What I am proud to say is I can offer SMEs loans at 18%. The guy down the road does it at 36%. His investors are doing better than mine, potentially. But I think 24% is a decent return and we don’t have to rip the heart out of SMEs while doing so.

The Finance Ghost: Yeah, look, if you can make the numbers work, it’s a very noble way to do it. And SMEs struggle to get access to credit in South Africa. They struggle to get access to decent finance other than, as you suggested, which is absolutely right, which is people that promise very quick turnarounds. And the reason those interest rates are so high is because the credit losses are higher, because they don’t actually try and sculpt anything. So high quality borrowers effectively are just subsidising a model that is designed to throw money at the wall and see what sticks. So if you can build a model that actually rewards high quality borrowers, then that is a very cool business long term.

I just want to go back to the second part of the question, which is how do you make sure you stick to mandate? Like, what is that infrastructure project, for example, at R120 million, is it a little bit more opportunistic to get to scale? How do you manage that?

Warren Wheatley: It’s bad disclosure and I’m going to whack my analyst on the back of the head. What it actually is, it’s a partnership with a telco who is creating a tower ownership model for communities. So the idea would be that we would fund the communities across about 10 or 20 different communities to own the towers in which they’re built and to create ecosystems around it so that people can service, maintain, clean the towers. So we’ve classified it as infrastructure because broadly speaking it is correct. But it’s across different towers and it’s for communities to afford to be able to buy and own the towers in those communities.

We lumped it as one because it was one single project with a particular telco. It’s been on there a while, I don’t think we won the bid, so we should probably take it off. But it was a wonderful project. It’s not like we were going to fund a bridge in Kenya or something like that.

The Finance Ghost: That was what I was asking really, because that’s what it comes across as, right? Like if you just read infrastructure project R120, my brain goes, ooh, what are we doing?

Warren Wheatley: Yeah, alright, so yeah, that was it.

The Finance Ghost: Okay, so that makes sense. So just keeping an eye on the time. We’ve got a lot to still get through so I think let’s do a couple of maybe slightly quick – not necessarily quickfire because I want to make sure we deal with everything, but there are some questions here that I think we can give – we can deal with quite quickly.

So one of them, let’s just do the balance sheet of Altvest quickly. You do seem to be tapping into the Credit Opportunities Fund as a source of funding for the total group. If I look at your recent disclosure, it looks like that amount went up quite a bit post period-end. You’ve had to do quite a drawdown there to make the money work from an Altvest perspective.

I guess the question is, is that all arm’s length in terms of does Altvest meet the standard lending criteria that investors directly into the Credit Opportunities Fund would expect you to meet? Because I think this goes back to the overarching point around preventing the group becoming a big spider web of cross-default risk contagion – one thing fails, everything fails. I just wanted to bring that to the fore and ask you to comment on that.

Warren Wheatley: Alright, so the relationship is different between Altvest and ACOF than ACOF and its SMEs. Altvest Capital is the asset manager and there’s a phenomenon in asset management, particularly prevalent in its first four years of life, called the J-curve effect. And that’s where the costs of running the fund exceed the fees that are being earned from assets under management.

So those drawdowns that you see are done under that prescript, where investors into asset managers understand that within the first three years of existence, typically, and in South Africa, actually, that J-curve effect lasts for as long as five years and up to R800 million in assets under management before an asset manager breaks even. So it’s under those prescripts and that understanding that our investors understand that we need to draw down because the full Altvest is deployed towards – 99.9% of our costs are incurred in running ACOF as a business, right? And so that J-curve is in effect, ACOF is only in its second year, but the fund is doing exceptionally well. We’ve deployed all our capital, we’ve supported 37 SMEs, we’ve created or supported in excess of a thousand jobs. And our investors are incredibly happy, right? This J-curve effect is unusual to your listeners, and that’s because most private equity managers are private. They don’t publicly have to disclose their operations.

And this is a function of the fact that – let me use a quick analogy. If you wanted to start an airline, you needed minimum competence on day one, right? So you need two pilots, you need a full ground force, you need a full set of hostesses on the plane, and that persists whether there’s two passengers or 200 passengers.

And it’s the same with asset managers, right? You can’t start off with me being the accountant and the tea lady and the CIO and CEO. In the same way, you wouldn’t want your pilot to be – you would be shocked if your pilot was checking you in onto the plane and then later on you saw him and he was like, right now I’m a pilot and once we’re up at 40,000ft, I’m going to put it into autopilot and I’ll come serve you guys drinks.

No, an airline has to have core competencies on day one, irrespective of how many passengers there are. For an asset management business, the same thing. And our investors tolerate that.

Because of that and because of that core competency required, we will dip into their assets to sustain the business for a while. The other side of it is incontemplatable because we would not have a core competency to be proper custodians of their assets. And it’s simply that. And it’s not unusual, it’s a worldwide phenomenon. The difference is that I have to show mine in public financial statements, whereas every other private equity manager gets to just discuss this at private meetings with their investors.

The Finance Ghost: I go back to my first question of would you have rather built this in private as opposed to the hornet’s nest of building this in public, right? Because it’s exactly that point. Operating losses in public are not a fun thing.

Warren Wheatley: Ghost, you get it, right? If you Google J-curve, the J-curve effect in private equity. And it’s not just private equity – it’s venture capital, private debt, even listed asset managers suffer from it from time to time. It’s there, it’s real. We’re no different. Our investors are aware of it. We disclose it to them and we disclose it to everybody. Transparency.

The Finance Ghost: Okay, I think let’s move on from that one to one more question about the balance sheet, which is just around collateral for loans into the group. And again, people can go and work through all the disclosure, but just high level, to what extent are Altvest shares pledged as collateral for loans? Are there cross-defaults, potentially? I’m just trying to again drill down to that risk of what can go wrong. At what point can investors wake up and suddenly the whole thing belongs to the bank? Or something went wrong over there and now it’s caused a problem over here. So, collateral, pledges, cross-defaults, let’s just deal with that?

Warren Wheatley: Let me deal with this in one fell swoop. And it deals with my commitment to the business as well. All the risk lies and has been underwritten by my personal balance sheet, right? So there are no cross-subsidies, there are no Altvest shares pledged for any debt facilities or anything like that. The balance sheet from that perspective is crisp and clean. Each asset is ring-fenced. But behind it all, up to R113 million is underwritten by me personally and my family trust.

So all of the risk sits with my balance sheet. If this goes *beep* up, it’s all my assets, my personal assets, my family assets that get wiped out to make sure that shareholders remain whole or as whole as possible. And why I say as whole as possible. This is risk after all. No investments are free of risk, but I have underwritten most of it. And from a group perspective, there’s no cross-subsidy of loans or anything like that. Even the loan we took from SEDFA is not guaranteed by Altvest, it’s guaranteed by myself in my personal capacity, and by my family trust. So we’ve kept Altvest out of the loop as far as guarantees and cross collateral within the group. Everything rests with me.

The Finance Ghost: Okay, I tell you what then, let’s move into all those remuneration, related parties questions. Then we can finish off with some of the funds that you’re still launching this year and kind of an eye to the future because now we’ve kind of touched on your personal balance sheet support for this.

So there was that Daily Investor article that did the rounds about your remuneration versus revenue. Very clever clickbait, shock and horror, gets everyone clicking and talking about it and everything else. Look, for what it’s worth, revenue is a terrible metric to use for a business like Altvest at the moment. Long term when it can take more asset management fees etc. then yes, sure, but some of the plays here are very much a net asset value story and the uptick in that. So just honestly, as an objective, pure financial view, revenue right now is not the best metric for Altvest in my opinion.

Having said that, there’s obviously an underlying concern in the article and certainly in those who read it about the recent trend in your remuneration. I think in the context of the group cash burn, which is a valid concern and certainly a question to handle.

So I’ll let you just set the record straight. I’ve got a couple of questions on remuneration. I’m going to do them one by one because otherwise it’s going to get confusing. So the first one is in terms of benchmarking for your remuneration versus peers, what sort of process happens behind the scenes to benchmark what you are currently being paid by the business versus the market?

Warren Wheatley: Alright, so there are a couple of good sources that our RemCo use as benchmarking. The first is publicly available information. There’s probably at last count around 12 either asset managers or similar type businesses where you could get properly disclosed public information. We’re talking about Easyequities (Purple Group), Sygnia, Sanlam, Old Mutual, all of those, right? And some of the smaller ones as well, some of the REITs, etc. There’s a lot of data where you can actually plot this and measure it.

Now, my salary when viewed on averages – because to take any one year is not appropriate because there were years I took zero, no one called and asked if I’m okay during that year, etc. – there were years I was substantially below market. It’s now been normalised and on that normalisation it’s still probably in the bottom quartile of peers. So that’s publicly available information.

SAVCA, which is the South African Institute of Venture Capital and Private Equity, publish salary surveys. They do release them to the public, but dated. The public could probably pick up 2022’s report. But they keep them fresh, they keep them out, but you need to be a member to access the most recent data.

And again by that benchmarking standard, and that is the industry body for private equity, venture capital, private debt, private credit, asset managers and what not only their directors, their CIOs, CEOs and investment principals are earning. Again, careful study of that would show that on average, I’m in the bottom quartile.

And then, again, there’s just lots of publicly available information. You can download a Michael Page survey of financial services salaries and again you’ll see that if anything I’d be in the bottom quartile of earners. I don’t want to be there, but I am.

The other thing that is different is that from a cash flow perspective, I also underwrite all of the business’ debt. I also have converted all my shareholder loans to equity. And so from my perspective, if you consider this issue in its full and proper context, I’m not milking the business. I’m not extracting profits. Some of the words that some of the X commentators have used – it really is fair, it’s normal and in line with a business of this nature and of its size. More than that, I don’t think there’s much to say. You could choose any metric. You could say my salary was 8,000 times interest earned by the business. You could use silly metrics to justify it. The point is we measure ourselves on NAV. And from an NAV perspective we’ve grown shareholder value by 13 times from inception to our last financial year, substantial growth. We went from zero assets under management to over R500 million in assets under management in three years.

The Finance Ghost: So I would always encourage listeners to obviously form their own view. I will make one more comment on that and then we can move on, which is to say the world is full of pre-revenue startups that have zero revenue and are funded by venture capitalists. And, 9 times out of 10, 99 times out of 100, the founders have to take home a salary. So not to say that obviously what you earn relative to the size of business – I’m not really commenting on that – it’s more just to say it makes zero sense to use revenue in a startup and try and use that as a metric versus what the CEO is earning and then draw a conclusion from solely that piece of information. I guess that’s just my point. It’s very clickbaity, it’s very clever and the mob loves it. But in true sophisticated financial terms, it’s actually nonsense. So that’s just a comment from my side really.

In terms of your current package, what portion of it is guaranteed versus linked to performance? Because that’s obviously quite important for alignment with your investors.

Warren Wheatley: So right now I’m on like a sort of fixed package. We have a big performance component, but that is premised on me delivering substantial growth to assets under management. Primarily amongst them is delivering a break-even cash position.

So in terms of the base package, that’s obviously guaranteed, but bonuses will be paid and I think must be paid if we deliver the goods. I don’t have a share scheme that I participate in, but that’s because I think I have an appropriate number of shares in the business between myself and my family. And so we are setting up a staff scheme, but from my perspective I would take more shares, I buy shares all the time. Whenever I have free cash, I do buy. But in terms of share awards, as the founder, it’s not like a company like Sanlam where they need to incentivise their CEO who comes in fresh with no shares and need to build up a plan to incentivise him.

My family and I own more than 50% of the business. There’s arguments that more than that is unhealthy from the way we look at risk and those kind of things.

The Finance Ghost: You’ve actually answered my next question which was going to be what portion of that rem is cash versus shares? So I’m happy that we can basically just bank that as answered. It sounds like your current remuneration package is very much cash focused, but you do have a large personal shareholding already.

I guess the one piece of feedback I would give is from my side, what I would look at from an investor perspective is more around a nice mix of – more like a smaller guaranteed package at the stage in the company’s life and then more of a performance linked piece is always nice for investors to see. Specifically if the KPIs just make a lot of sense – and KPIs get abused like crazy on the JSE all the time by a bunch of companies and management teams earn a fortune for quite poor performance, that’s just one of the issues on the JSE – so for an investor, it’s always nice to see solid KPIs and a performance linked component. So just some feedback from me for you to potentially onboard.

Last question around rem – I was going to ask you about to what extent your personal assets have been used to get Altvest to this point, but for me you’ve answered that already. So what is the experience of the members of the remuneration committee? What gives investors comfort that the robust questions are being asked? You do have quite a young board versus a number of JSE companies, so is there enough experience on it with this kind of stuff? Is that rem committee pushing back when they need to push back, Are they challenging the status quo? That kind of stuff?

Warren Wheatley: The answer is yes, yes, yes and yes, right. But let me just unpack the chair, who is Bright Khumalo. He’s a renowned investment analyst and portfolio manager. Part of his job is analysing and proxy voting on remuneration policies of listed companies, not only in South Africa, but across the world. He’s an international portfolio manager, so these are things he picks at, he looks at, he unpacks and he considers whether they are structured in the best interest of shareholders. And from that – that’s the perspective from which he approaches the job. The fact that he’s, you know, 23, does that matter? It’s the experience that he gets, it’s how – he’s not 23, you know, before X goes nuts.

The Finance Ghost: I was going to say Bright would take that as a serious compliment. Definitely.

Warren Wheatley: But part of his day job is analysing these – not only at Altvest, but probably 30, 40 companies a year. I can’t think of someone who studies remuneration policies of listed companies more than he would, other than HR practitioners. And so from that perspective, I think that makes him exceptionally qualified to opine and look at what we’re doing and make sure it’s in line with the market, make sure it’s congruent with shareholder value accretion in terms of what we do.

People – the fact that he is young and successful should not diminish the calibre of his expertise in this area. And the same applies for all of our directors in one way or the other. You’d have noticed we’ve put together a board that brings multitudes of skill sets and it’s not conventional, but we never ever want it to be.

The Finance Ghost: Yeah, that does come through for what it’s worth. So, this is part of why I went the route I went with rather being faceless in this business is because people perceive when they see a younger face, they think, ooh, is there enough experience there for this person to really have these opinions and views? I can completely understand that. And you know, it is just perception of the board and that’s why I raise these things and make sure we talk about them.

Just conscious of time, I think let’s deal with the last rem question as quickly as we can. So one of the questions that was asked on X just referenced – and I’ll just give you some of these numbers – R500,000 paid to a company owned by the wife of the CEO, so that would be Tatum, R3.8 million paid to a company of which Warren Wheatley and his immediate family are owners and beneficiaries, R1.2 million rand paid to a company owned by a family member of the CEO. I didn’t find all of these numbers in your latest financials, so I’m not sure if they’re older or if they sound right to you.

So I’m going to ask the question more broadly, which is related party payments and services being rendered – who is involved from your family side? How do investors know it’s all market related? I guess that’s the question.

Warren Wheatley: Alright. I mean, this is a really simple one. Anyone who started a business will understand this off the bat.

I started Altvest from our dining room table during Covid. Who was around the table? My brother, my wife. Both of them are still involved. I couldn’t pay either of them in cash and neither could I pay any of my other service providers. When I started Altvest, I called friends and family, I begged, I pleaded, I called on favours. And what I could offer people was a settlement in shares if all of this worked.

And so if you go back to our founding financial statements, you’ll see a full schedule of everyone who I paid for services in shares. Tatum is my wife, but we’re a family business. That’s not unusual. Robin is my brother. He’s a lawyer. He drafted all the complex agreements, the MOIs and all that sort of stuff. I couldn’t pay him then, I paid him in shares. I paid every staff member who took on risk of not getting a salary for six months, you’ll see their names there too. You’ll see Alec Hogg because I paid for media exposure. You’ll see all sorts of service providers, marketing, printing, website design – all people who would accept settlement in shares, right?

That was fully disclosed. It’s normal. It’s a family business. It’s a startup business and the reason why it’s not in our financial statements this year is that this is a settled issue. It was dealt with three years ago. It was fully disclosed. We didn’t take the financials down. It’s there, you can go and look at it.

In total I spent R24 million at least in share-settled payments to friends, family and people who were related to me in ways that don’t meet the Company’s Act definition. Childhood friends who ran website companies and I asked them to do me a website please, I beg. I don’t have cash but I’ll give you shares and your shares will be – you know they’re all upset now because they can’t sell their shares because of the illiquidity, but that’s another story that we should unpack at some point in in the future.

The Finance Ghost: So Warren, then maybe just to finalise this whole section, one of the questions that came up was around to what extent you’ve pledged your shares in Altvest held in WGW Capital or otherwise. And I think again maybe that just talks to alignment and personal risk etc. And then you did convert a portion of your loan into prefs in the Credit Opportunities Fund I think in last financial year. At what price is that conversion calculated?

So just a quick note on pledges and then the conversion of loans to equity and pricing.

Warren Wheatley: I’ve pledged and made guarantees to both Altvest to underwrite working capital commitments and to SEDFA who have given us a facility for ACOF, right? So that is at R75 million. The way the guarantee works is that they would exhaust my personal resources until that guarantee is satisfied.

Another way of thinking of that is that I’ve pledged everything, right? So I’m all-in on this venture. The share conversions are done at the higher of NAV or market price, and so I would never take a conversion at a mispriced share price. So those would have been done and I don’t have the numbers at hand but they would have been done at NAV, or the higher of NAV your market price.

The Finance Ghost: So that’s a tick in the box, so well done, because that’s the right way to do it is higher of NAV or market price I would say, so in this case that would mean NAV as opposed to converting at a lucrative price. So well done.

I think I’ve got one more question that’s going to talk to the balance sheet and then I’d really like you to finish us off by talking about the future. So the last question that I think we need to deal with – because we could talk about liquidity in the underlying shares, but it’s a bit of an esoteric concept, right? I mean if it was easy to solve we would never see delistings. But we see them all the time for illiquidity. So it’s just something where the market needs to develop. Maybe as you guys have spare capital you can get on the bid and do buybacks and there’s some exit liquidity there, albeit at depressed prices. That’s almost a much bigger story than we can answer here. And it’s a problem that is not unique to Altvest, so I think that’s rather maybe just leave that one unless you specifically want to add anything there.

But I think what’s more interesting is to actually ask you: to get to break even on a cash from operations perspective, what sort of AUM do you need to get to and when do you think you’ll get there? Like when does the burn stop? Because I think that is probably the number one question that any startup needs to think about.

Warren Wheatley: Alright, so as of today my AUM is at about R550 million, right? Cash break-even is at R800 million. So I’m about R250 million out. ACOF is already at cash break-even and will be profitable at the next time we report, 31 August.

So we’re on track man. At R800 million, Altvest Capital as an asset manager is at break-even and that’s within – that’s going to be within three and a half years from inception, which is – I would have liked to have shot the lights out from that perspective, but it’s in line with peers and competitors. So nothing too bad or not really shooting the lights out from that perspective. ACOF on the other hand, though, is going to make substantial profits and we’ve put some material on the website that shows what ACOF looks like and then consequently what Altvest looks like at different numbers.

I don’t think I answered you earlier but I want to see ACOF at around R5 billion. And at that asset level we are printing serious amounts of cash.

The Finance Ghost: Yeah, that’s true actually, I did ask you how big you think it could get, but I think we both got distracted by some of the real-world stories of what’s in the fund, which is a good thing.

So, I think let’s look to the future and how you get there as we bring this to a close. I had a look at your financials and it looked like there were three launches still coming this year. Now obviously we have to be very careful, don’t say anything that should be out on SENS. You know the idea here is not to like give the market price sensitive information, so obviously please take that into account. It’s more to just do a temperature check.

Let’s start with the Altvest Orient Opportunities Fund and the Altvest SBS High Impact Seed Fund and then we’ll get to Bitcoin which I know you are very excited about. So let’s just do those two quickly. Temperature check? On track / behind, where are you at?

Warren Wheatley: Sadly behind. Let me quickly talk about some of the miscalculations I’ve made in this journey, right? The complexity with doing a listing is as complex whether it’s a single asset like Umganu or Bambanani or a fund like ACOF or what we intend with the Orient Opportunities Fund or the Venture Capital or the Seed Fund. The difference is that Bambanani is not as easily scalable and Umganu is not scalable at all. I can’t build up, I can’t build down, I can’t expand. So if you’re going to go through all that heartache and tension and hurt, then at least make the project scalable.

So the shift or the pivot is that we’re going to launch these fund-type structures like ACOF, which is private credit, Orient Fund, which is a Chinese venture capital seed fund where we’ll raise buckets of money and seed fund hundreds of SMEs as opposed to a single one. Same with Venture Capital, Township. So there’s a whole list of stuff.

How it works is that we’ve got to send our ideas – and this is simplifying it – but we send our ideas to the JSE, they interrogate it, they poke holes in it and ultimately tell me then okay, you can submit it for approval. That’s the other thing I miscalculated, is that the complexity of the regulatory regime that consumes us in getting these things done.

Both of those have been submitted for approval and it’s really kicking the board around with different regulatory bodies. The venture capital one for example, brings in the SARB, it brings in the FSCA and not just the JSE, because it’s into China, it’s cross-jurisdictional, it crosses into issues around whether it’s a unit trust or not, etc. etc.

So I completely got the complexity of the regulatory regime wrong. And so they take longer, they frustrate me, it irritates me. I get annoyed and angry because I just want to, like, do these things, right? And that’s as much as I can say about that.

From a Bitcoin perspective, we’re alternative assets and Bitcoin is the ultimate alternative asset. And we’re going to bring something really cool to the market that gives people different ways to expose themselves to it in ways that are currently inaccessible to South Africans.

There are companies in the world, in jurisdictions across the world, the UK, France, Australia, Brazil, a concept called Bitcoin treasury strategy companies, that are delivering in excess of 2000% per annum. Whether that’s a bubble or not, is not a position I take. What I take a position on is whether South Africans have the ability to make that decision for themselves and direct capital towards it. And to that end, we’re going to be doing one for Africa.

So, we made the announcement in Feb. We’re fiddling around and bedding down the last few regulatory hurdles before we launch. But, you know, I would encourage your listeners and your readers to look at The Smarter Web Company in London, Metaplanet in Japan, look at H100 in Sweden, look at MicroStrategy in the US and you will see unique deployment of capital in ways South Africans aren’t even thinking about. We aren’t even talking about it. And this is happening and we remain in our vacuum debating the most ridiculous issues and not watching what’s happening in the world. My job is to bring these opportunities to South Africans and that’s precisely what we’re going to do.

The Finance Ghost: Okay, well, like I said at the start, no shortage of ambition, no shortage of edginess, and just an overarching consistency, I think, in being different. Maybe that’s the best way to say it, is if there’s something you can do different, it’s like you run towards it, and I do admire the deep desire to build something different. It is the “crazy people change the world” story. I think building this in public is extremely difficult. And I think it really, it’s not going to get easier. I think maybe, in a few years’ time, you’re either going to look back and this will have been the absolute best thing you ever did, or literally the absolute worst. It kind of has that binary feel to it. And I think what I do appreciate is this podcast, and it’s something that we’re going to release – like the only editing here will be a little bit of background street noise where I can get rid of it or whatever. There’s nothing else. This is as it was recorded.

And I would encourage listeners to just make your mind up as you always should. In all the work that I do, it’s really just about bringing you these insights, apply your mind to them and at least if nothing else, make decisions based on correct financial concepts and not silly ratios and something you read once in the press that then got shared everywhere because it’s clickbaity. Just do the work and learn and listen to this stuff and then arrive at a conclusion.

And if your conclusion is bearish, that’s fine. And if your conclusion is bullish, that’s also fine. But just follow the process, apply a proper investment lens.

So, Warren, I think we are basically done with this chat. I feel like we’ve covered off essentially everything we said we were going to cover off in terms of giving me this mandate to ask you whatever I wanted and whatever came up online as potential questions. I really appreciate the time and I’m going to just leave it to you now if there’s any sort of passing thoughts you want to leave with listeners for 30 seconds and then I’ll let you go off on your way and build this complex and exciting animal that you’ve decided to wrestle in your life.

Warren Wheatley: Thanks, Ghost, and thank you for, number one, providing a platform for voices like ours. I think it’s underestimated how important this is and how critical it is in our glide path to success. So I’m really appreciative that you even give guys like us a platform to speak from.

What I would say to the investment community is please continue to engage with us. Please continue to pressure us for performance. We’re doing great things not only for our investors, but for our country at large.

We are impact investors personified, down all the way from me down to all my analysts, ops teams. Everyone is geared towards creating a positive impact for the country we all love. And we need your support. We want your support and we understand very, very fully that we owe you our diligence and we owe our existence to you. And for that, we thank you and we ask you to continue supporting us and holding us accountable.

The Finance Ghost: Warren, thank you. To the listeners, I hope that you enjoyed this, that you got something from it. And I would encourage you to take Warren and the team up on this. If you’ve got further questions, send them through to Altvest. Don’t send them to me, send them to Altvest, speak to them directly. And send the pointed questions – ask the tough questions, I think Warren’s shown that he’s open to it. You are always welcome, of course, to ask me what I think and what I think is what I’ve said on this podcast, which is that this is an exciting thing to be trying to build but it’s really hard. You know, it’s probably too far along on my risk spectrum, but I really admire anyone who’s trying to build something as hard as this and I hope it succeeds because I think for South Africa it would be lovely to see. There are too few stories of South Africans trying to build edgy, exciting startups. We just don’t have enough of it in our country and it’s nice to see that happening.

So, Warren, all the best to you. Good luck to you and the team. I’m sure we’ll do another one of these at some point and hopefully with some good news stories behind it and yeah, good luck.

Warren Wheatley: Great, thanks. Goodbye everyone.