DAVID MASONDO: PIC continues to drive growth under testing conditions

The Public Investment Commission (PIC), the board of which I have the privilege to chair, has delivered a sound economic performance under challenging conditions for the year ended March 31, as attested to by its integrated annual report, released this week.

The period under review has been characterised by elevated interest rates, inflation and cost of logistics globally. These are legacies of the Covid-19 pandemic and the cost-of-living crisis and supply chain disruption caused by geopolitical conflict, which has elevated shipping costs worldwide.

Domestically, the period under review has been characterised by the additional challenge of severe power outages, logistical constraints, high unemployment and sluggish economic growth. Many of these are being resolved now, but they have affected the results of the 2023/24 financial year.

The PIC has used its position as the largest investor in the SA economy and the continent to drive and support economic growth, facilitate transformation, support new and established businesses in strategic industries and support SA’s state-owned enterprises.

Growth and investment performance are the most important indicators for the PIC’s mandate. Since its corporatisation in 2005, assets under management by the PIC grew from R461bn to R2.7-trillion by March 31. 

Total assets under management grew R95bn during the year under review, despite the challenging conditions. The Government Employees Pension Fund (GEPF) portfolio, which accounts for 88% of the PIC’s assets under management, grew 2.9% to R2.4-trillion. The portfolio delivered a total return of 5.3% in 2023/24, 0.3 of a percentage point lower than the benchmark. 

Compensation Commissioner

The Unemployment Insurance Fund (UIF) portfolio, which accounts for 5.6% of the PIC’s assets under management, grew 12% to R149.5bn. The UIF portfolio recorded a total return of 7.2% during the year, 0.3 of a percentage point below the benchmark. The UIF still needs to be commended for coming through a sustained period of withdrawals to facilitate the Temporary Employer/Employee Relief Scheme (Ters).

The Compensation Commissioner’s Fund (CC) portfolio, which accounts for 2.2% of total assets under management, grew 8.4% to R59bn. The Compensation Commissioner’s Pension Fund (CP), which accounts for 1.9% of total assets under management, grew 9.8% to R51bn.

The combined assets under management of 13 other clients, which account for 2.4% of the total, stood at R64.3bn, representing growth of 4.8% year on year. 

The PIC investment performance on behalf of all its clients enables these vital government institutions to sustain the livelihood of civil servants in retirement, support workers during periods of unemployment, and compensate them in the event of injury on duty among many activities.   

Apart from growing the investment portfolios of all clients, the board declared and paid a dividend of R141m to the shareholder for 2023/24. This brings the cumulative dividend of the past three years to R381m. 

As the board we recognise that we set the tone for the organisation culture and to uphold the principles of good governance, integrity and ethics. Our engagement with the executive is aimed at fostering effective governance and robust risk management at all levels.

Unqualified audit

That is why I am proud to report that the PIC has implemented all 243 recommendations of the Mpati commission, including those that needed forensic investigations. Where applicable, matters have been referred to the Directorate for Priority Crimes Investigations (the Hawks).

I am extremely proud to report that the PIC received an unqualified audit opinion (with findings) from the auditor-general for a sixth consecutive year. 

During the year under review the board was alerted to significant weaknesses in the company’s payroll functions. These were addressed through corrective measures including enhancing the segregation of payroll duties, implementing additional approval layers, and strengthening system access controls. These are disclosed in the financial statements in the annual report. 

The PIC recognises the vital role played by state-owned enterprises in their operation of network industries of electricity supply, logistics in road rail and pipelines, water supply and telecom. These also facilitate SA’s ability to trade with the rest of the world. As such, the PIC is a significant investor in major state-owned companies through various instruments, primarily bonds. 

In the year to March the PIC had exposure of R4.7bn in Transnet short-term bonds. After a six-month extension of the maturity date to the end of March, these were successfully settled by Transnet. The PIC notes the improved operational performance reported by Transnet for the year to March, with a loss that has been worsened by provisions made for litigations.

Food security

The PIC remains one of the biggest investors in Eskom, and notes the entity’s recent achievement of 150 days without load-shedding as well as the R254bn debt relief package provided by the National Treasury to enable it in part to service its debt as it falls due. Exposure to Eskom bonds was about R83bn by the close of 2023/24.

The PIC also assisted in the stabilisation of Land Bank, an important player in the transformation of the agricultural sector that also helps contribute to food security in the county and region. The debt restructuring proposal, which enjoys the support of all lenders, for Land Bank’s Liability Solution 5 sought to cure the bank’s default position, restructure the repayment of debts and allow the entity to resume normal business operations. The PIC’s current exposure is R3.2bn, having received haircuts amounting to R4.3bn since Land Bank’s default.

The PIC believes that SA offers numerous intriguing investment prospects across multiple sectors. The global scramble for resources required for the green energy transition presents a unique opportunity for SA and the rest of the continent to meet global energy needs.

The SA government is promoting renewable energy sources, which appeals to investors wishing to profit from this emerging sector. SA’s continued need to invest in energy, transport, water and social infrastructure is a key source of investment opportunity.

The PIC has noted that the conversation about BEE has taken a back seat over the past few years as the country grappled with a number of challenges, including the probing of claims of state capture, the pandemic that will mark its fifth anniversary at the end of the current financial year, as well as the debt and cost of living crisis that has ensued since.

BEE firms

The PIC believes transformation remains an imperative and should be pursued vigorously. To facilitate broad-based BEE and skills development in the asset management industry, the listed investments team allocated a minimum of 98% of total brokerage fees to firms with BEE rating of levels one to three during the period under review.

Fees paid for portfolio management services on domestic assets for the year totalled R837m (base and performance fees combined), with R516m (62%) going to BEE firms in this financial year. These black asset managers earned R330m in base fees for services rendered, while most outperformed and earned an additional R186m in performance fees. 

For the year under review the PIC launched the Women Empowerment Fund and the Global Developmental Programme to address the notable underrepresentation of black women as shareholders, in governance and the roles of investment professionals.   

The flagship Isibaya Fund invests in social and economic infrastructure to support economic growth, job creation and the inclusion of marginalised communities. Isibaya also facilitates the development of emerging black industrialists by providing acquisition finance to black and women professionals and entrepreneurs to promote economic transformation in privately owned companies that are largely untransformed at a shareholder and management level.

For the year under review the Isibaya Fund approved transactions totalling R3.6bn in SA and across the continent, covering financial services, economic infrastructure, pharmaceuticals and chemicals. 

In addition to these, the PIC approved R 8,5bn in unlisted investments. The PIC is an investor in Digital Inclusion Consortium, a shareholder in Metrofibre Networx, a black-owned company that has installed fibre network for household and businesses in seven of SA’s nine provinces in urban and periurban areas. The company competes in a strategic area of the digital economy.

• Masondo, the deputy finance minister, chairs the PIC.