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

The latest annual report of the Public Investment Corp (PIC) creates the impression of SA’s largest asset manager doing a mighty fine job. But revelations before the commission of inquiry into PIC irregularities reflect precisely the opposite. They cannot both be right.

Whatever the findings that will ultimately be produced by the commission — chaired by retired judge Lex Mpati — things can never be the same again; neither for the PIC itself nor for its major client, the Government Employees Pension Fund (GEPF).

The PIC directly manages almost 90% of the GEPF’s R2-trillion investment portfolio.

Together, the PIC and GEPF have been presented as the manager-client model for SA retirement funds to emulate. Clearly, the model is flawed. When the alleged shenanigans at the PIC took place, where was its board, to whom the CEO reported? And where was the GEPF board to ensure that the PIC complied with its mandated responsibilities?

The PIC directors resigned en masse, ostensibly because the evidence before Mpati had made their jobs impossible. Should allegations be proven — there’s a long way to go — dismissals in disgrace might seem more appropriate.

For their part, the GEPF trustees cannot indefinitely leave their stewardship role unexplained. It is they who provided the PIC with its investment mandate. It is they who, the GEPF annual report proclaims, govern the fund and are accountable for its investment and administrative performance. They also protect its values, which range from integrity and transparency to being the flag-carrier for stakeholder activism and responsible investment.

Yet the PIC faces interrogation from the commission about a fundamental tenet of the mandate: the GEPF trustees “require global best practice in terms of risk management, monitoring and reporting”.

By way of illustration, what is starting to surface are huge amounts paid in advisory and other fees by the PIC to various black-empowerment entities. Comments by Sygnia CEO Magda Wierzycka from a supposedly “private and confidential” PIC document in a Business Day column affect the reputations of numerous entities “completely unknown” to her, though at least one is a service provider in competition with Sygnia.

That the entities are unknown to Wierzycka doesn’t necessarily make them or their transactions with the PIC suspect. The document lists fees paid by the PIC from 2014 to 2018. During this period, the PIC chair was then deputy finance minister Mcebisi Jonas. He was subsequently appointed a director of JSE-listed Sygnia Asset Management, on whose main board he continues to serve.

Perhaps it’s easier to address the SA Home Loans issue. It is small in financial terms but big in principle, involving a payment nearly deflected by the PIC from the GEPF to an individual. The “mistake” of then PIC CEO Dan Matjila was successfully challenged by SA Home Loans.

Were there occasions when similar “mistakes” were not detected? It will be for the commission to find out, as it has with such contentious schemes related to investments in Ayo Technologies and Independent Media, which bring with them the important question of how the PIC has selected black-empowerment investees.

Related to this is the criteria — shown only in broad transformational terms — that were used by the PIC for investment in 123 unlisted companies and to support 785 small to medium enterprises. Where personal or political interventions were possibly at play is left to guesswork, except for the Mpati hearings.

Still undisclosed by the PIC are the identities of the 13 external asset managers it appoints, let alone the sizes of their respective allocations. The PIC merely records the managers by number and shows their BEE levels in an agglomerated table. The GEPF, on the other hand, identifies by name the 18 external managers which it says the PIC has appointed for parts of its portfolio. But it too doesn’t set out the sizes of their respective allocations.

Why the differences in disclosures, or lack of them, when competition for allocations is fierce and billions of rand in pension money is at stake? Are appointments made on the basis of objective criteria, consistently applied? Once there was trust. Today there isn’t.

As the PIC inquiry continues, policy issues arise for consideration. They would include:

• Whether the PIC should continue in its present form or be incorporated into the GEPF to eliminate duplicated structures. There are talented personnel in both the PIC and the GEPF (including highly regarded board members) whose functions overlap. In its most recent financial year, the GEPF paid R1,1bn to the PIC in management fees while the PIC had R805m in total expenses, of which R550m were employee costs;

• Whether, alternatively, the PIC’s investment function can be performed entirely by GEPF-appointed external managers under client mandates, or whether the PIC should be open to competition for GEPF appointments. Such moves would doubtless cause salivation among private sector managers, particularly those with strong BEE credentials, and the potential explosion in the sizes of their assets under management should comfortably accommodate the absorption of specialist skills from the august bodies;

• If this cannot be done, whether the PIC’s board composition should be solely at the government’s discretion. By contrast, half of the GEPF’s board consists of stakeholder representatives;

• Whether the time has arrived for the GEPF to establish a defined-contribution fund, so that new members can enter it and existing members can choose whether to convert from the present defined-benefit arrangement. A defined-contribution fund (prevalent in the private sector) could be to the greater advantage not only of members but also of the government (hence taxpayers) which underwrites the defined-benefit liabilities.

None of these suggestions can be argued simplistically, but they could be contemplated seriously, given the thrust for review that has been generated by changed circumstances. The ostensible situation that’s arisen, of the PIC’s unacceptable behaviour and the GEPF’s flawed oversight, cannot be resolved by tinkering.

It should begin with an examination of the GEPF’s investment mandate to the PIC — curiously, not at present in the public domain — for launching a debate on how its objectives can best be attained. Documentation is one thing. Implementation is another.

This might not be within the immediate remit of the Mpati commission. However, it might well be a necessary consequence.

Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for the principal officers and trustees of retirement funds.