Dan Matjila, former chief executive of the Public Investment Corporation, has said the asset manager was concerned with governance at Steinhoff, but no prudent investor would be able to pick up irregularities at the retail group.
Matjila gave evidence before the PIC commission of inquiry on Tuesday. The commission, chaired by Justice Lex Mpati, is investigating allegations of wrongdoing at the PIC, which oversees R2trn in state funds.
Before the collapse of the Steinhoff share price in late 2017, related to accounting irregularities, the PIC had increased its shareholding in the retail group.
Board representation 'critical'
Matjila told the commission the PIC was concerned with governance at the retailer but could not influence any changes without being represented on the board. This led to the PIC acquiring 3.5% of shares that would give the PIC special voting rights. The PIC was ultimately represented on the Steinhoff board by Jayendra Naidoo.
"Governance is extremely important in the performance of companies. The return generation of any company is normally due to an appropriate board able to drive wealth creation and manage the risk of the company. That is why representation on the board was critical for us," Matjila said.
At the time Steinhoff was considered a "sound investment", a "darling" of the JSE and other stock exchanges around the world, he said. Discussing the loss of Steinhoff's share value that followed, Matjila said the losses incurred by the PIC's investment were "significantly deep and regrettable."
"I take full responsibility as the head of the PIC," Matjila said.
He added that anyone could have been duped by Steinhoff – the malfeasance at the retailer was "orchestrated" over many years. "No prudent investor would have detected these irregularities," Matjila told the commission.
Despite losses to Steinhoff's share value, by more than 90%, the PIC's exposure to Steinhoff represented less than 1% of the PIC's assets under management.
"It was one in over 300 securities in the PIC portfolio, so the loss was thoroughly cushioned," Matjila said. A single stock could not collapse the entire portfolio which is well diversified, he explained.
The PIC's portfolio can survive one or two of these disasters – but if it were to happen on a bigger scale, it would have a "dire impact" on the portfolio, Matjila added.
Subsequently the PIC wrote to Steinhoff requesting that board chairperson Christo Wiese step down, and for two non-executive directors to be appointed on the board, among other interventions.
Where are the auditors?
Matjila questioned where the auditors were when the malfeasance was carried out, as investors like the PIC rely on their audit reports when making "prudent" investment decisions.
For this reason the PIC also recommended to the Independent Regulatory Board for Auditors that the policy of mandatory audit rotation be enforced as it prevents the same auditor from serving a company for more than 10 years.
Although there are objections to the cost of rotations, Matjila has argued that the collapse in market value is far more costly than changing auditors.
The inquiry resumes at 09:30 on Wednesday, Matjila is expected to provide evidence on VBS Mutual Bank and other investments.