Dan Matjila. Picture: SUNDAY TIMES
Dan Matjila. Picture: SUNDAY TIMES

The first two weeks of the Mpati commission of inquiry into dealings at the Public Investment Corp (PIC) have revealed just how susceptible the state-owned asset manager has been to political interference and the whims of its erstwhile CEO, Daniel Matjila.

The commission, chaired by retired supreme court judge Lex Mpati, has been tasked with investigating allegations of malfeasance involving specific investments, as well as reviewing the PIC’s organisational structure and practices. It also has the discretion to investigate any other issue that may arise in the course of its work.

In a surprise twist before the second day of proceedings, the board announced it was immediately suspending PIC head of listed investments Fidelis Madavo and assistant portfolio manager Victor Seanie for "blatant flouting of governance and approval processes" relating to the Ayo Technology Solutions transaction.

In one of its most controversial deals, the PIC agreed to take up the entire subscription of R4.3bn at the initial public offering of Iqbal Survé’s Ayo, when it listed on the JSE in December 2017.

Evidence leader advocate Jannie Lubbe immediately condemned the suspensions, saying he thought it "strange and alarming" that the board was running a process in parallel with the inquiry.

Regardless of my opinion of the investment merits, individuals with authority at the PIC had already decided they would ensure the PIC invests in Ayo
Victor Seanie

As would later be revealed, the board appeared to be throwing Madavo and Seanie under the bus.

Despite being suspended, both proceeded to testify. Madavo stated he was involved in the due diligence of Ayo but did not sign off on the investment, as protocol dictated, because he was out of the country at the time and had delegated authority to one of his subordinates.

In even more detailed testimony, Seanie described the numerous irregularities surrounding the Ayo deal, including how the deal was approved and payment authorised before it was even presented to the portfolio management committee for ratification.

A highly qualified assistant portfolio manager for listed nonconsumer industrial investments, Seanie was, in his own words, the closest individual to the transaction from the perspective of understanding the firm.

He testified that he quickly realised Ayo was a poor investment but, despite stating as much in his report, he was instructed by his superiors to provide a favourable recommendation to the investment committee.

He also highlighted the "dismissive" way in which executives from Ayo and African Equity Empowerment Investments (AEEI, another Survé entity) engaged with him over the timing of the listing. Seanie had wanted it pushed out so they could complete their work properly.

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PIC timeline Click to enlarge.

Seanie also stated how inflexible Ayo and AEEI were regarding the price, even though the PIC was the only investment manager prepared to subscribe for the shares. "This convinced me that, regardless of my opinion of the investment merits of Ayo, individuals with authority at the PIC had already decided they would ensure the PIC invests in Ayo," he said. The investment in Ayo has collapsed since listing, losing over half of its value and slicing off R2bn in value.

Seanie said Survé’s friendship with Matjila was the "genesis and primary driver of the PIC’s investment in Ayo".

More madness was on the cards.

Last April, the PIC met with another Survé entity that was coming to market, Sagarmatha, to consider investing between R3bn and R7.5bn. Were it not for the JSE pulling the listing due to a technicality, the investment would have gone ahead at the proposed price of R39.62 a share.

"I believed Sagarmatha was worth closest to the bottom end of my valuation range of R4.39 per share, if not less," Seanie said.

Which brings us to Matjila. The most glaring discrepancy in the PIC’s structure is the conflation of the role of chief investment officer (CIO) and CEO under Matjila.

Matjila served as CIO of the PIC since 2005. It appears the two roles were combined when he was appointed CEO in December 2014 (taking over from Elias Masilela, who himself left under a cloud). This runs against established practice at most private sector asset managers, where the role of CEO is largely administrative and has little authority or scope to approve investments.

What it means

The organisational structure of the PIC needs to be reformed to ensure its independence from political interference

The fact that most deals of Ayo and Sagarmatha’s size originated from the office of the CEO gives credence to the degree to which power was consolidated under Matjila and, in turn, the degree to which investments could be politically motivated.

In addition, the deputy minister of finance has traditionally chaired the board. This means there is a clear and direct route for political interests to channel through the office of the CEO to obtain funding for transactions involving the politically connected.

The PIC’s largest client, the Government Employees Pension Fund, has already written to the PIC requesting the separation of the CEO and CIO roles. This, together with the depoliticisation of the board, is expected to come under the scrutiny of the inquiry when the hearing resumes on February 25.

The break will give the commission time to finalise its forensic report and process other whistleblowers who are stepping forward. One of them, whose identity the FM cannot reveal at this stage, is expected to offer more explosive testimony than that of Seanie. It is also quite possible that the anonymous "James Nogu" may continue circulating allegations of wrongdoing at the firm.

No-one at the PIC knows who Nogu is.