The state pension funds puzzle
The PIC has a problem with full disclosure. This is why ...
Will the PIC’s annual report, soon to be released, give full details of its investments? And would any support for SAA meet the requirements for such expenditure?
The Public Investment Corp (PIC) should decide for itself whether it is fish or fowl — whether it complies with the governance standards of transparency and accountability it requires of others or not. Its annual report for the year to the end of March 2017 is due for release. Look to it for the answer.
There were critical nondisclosures in the 2016 report. They related particularly to:
• The identities of the external asset managers who were engaged and the sizes of their respective allocations; and
• The identities of the recipients of loans or investments made by the Isibaya developmental investment fund division, the sizes of these loans or investments and their respective performances.
What is PIC policy on making such disclosures? "There will be enough disclosure in the annual report of our investments," says spokesman Sekgoela Sekgoela.
Well, in the 2016 annual report there wasn’t enough. In fact, there wasn’t even a hint of the identities of the external asset managers or of the Isibaya recipients. Neither were there revelations about respective sizes and performances. It’s a mystery that these remain a mystery.
There is keen rivalry for external manager appointments. This is because in 2016 these managers handled 7,4% of the PIC’s domestic listed equities. That’s a significant proportion. Of the PIC’s total R1,9 trillion in assets under management, predominantly from the Government Employees Pension Fund (GEPF), its listed portfolio for equities represented over 12,5% of the JSE’s market capitalisation.
The report does say that R57bn had been allocated across 14 black-owned firms, but doesn’t specify the criteria that define black ownership. In numbers that seem difficult to reconcile, it explains: "R11,5bn was allocated to existing external managers, all of which were black-owned firms: R9,5bn to four established BBBEE managers and R2bn to a developmental BBBEE manager."
So it’s impossible to know the level of BBBEE compliance that qualifies. This is moot as the revised Financial Sector Charter kicks in. Equally impossible is an assessment of the fairness in the distribution of allocations.
Regarding the Isibaya division, which held an unlisted portfolio of R44,6bn, it goes without saying that transparency should be a prerequisite. Isibaya supports over 1,000 smaller and medium-sized enterprises. That’s commendable, in pursuit of the PIC’s developmental mandate, but without disclosure of recipient identities and exposures the PIC is vulnerable to extraneous pressures for assistance that might not always align with unbiased evaluation.
Last year Mcebisi Jonas, who as deputy finance minister chaired the PIC board, insisted that the corporation tell the parliamentary standing committee on finance about the fund’s involvement with unlisted Independent News & Media SA. This was at the behest of opposition MPs. The precedent has thus been created for Jonas’s successor, new deputy finance minister Sfiso Buthelezi, to tell of all exposures falling outside investment grade.
Then consider the PIC’s investment in the Bophelo Insurance Group. With perhaps more than R200m in mineworkers’ savings unaccounted for, the Bophelo Beneficiary Fund and Bophelo Benefit Services were placed under curatorship by the Financial Services Board. What possessed the PIC to take a 30% stake? What due diligence preceded it? Will it now, to help the mineworkers, throw good money after bad?
Meanwhile new finance minister Malusi Gigaba has told parliament that he has the PIC in mind for sinking R6bn into the black hole of SA Airways. The PIC is there to advance the interests of 1,7m members in government pension funds, not to take up obligations that will look horrible on government’s balance sheet. Since the finance minister appoints the PIC board, its credibility stands to be tested.
In other words, the board is obliged to tell Gigaba that he should take a running jump unless the case he puts to support SAA meets the PIC’s requirements for investment-grade status. As an asset manager, the PIC is bound by fiduciary duty and directed by client mandates in the management of these assets. Its boss is the client funds, not the minister.
Look a little closer at the GEPF, its biggest client, whose own board consists of representatives of government (the employer) and members (employees and pensioners) in equal numbers. Being a defined-benefit fund, any shortfall in the GEPF’s pensions promise to members must be made up by government.
That means taxpayers. Surprise, surprise.
• Greenblo is editorial director of Today’s Trustee, a quarterly magazine mainly for principal officers and trustees of retirement funds.