Long road ahead for floundering PIC

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Dr Reuel Khoza, the new interim chairperson of state asset manager the Public Investment Corporation,  at the Sunday Times Directors Event in June 2015 in Johannesburg. (Photo by Gallo Images / Sunday Times / James Oatway)..
Dr Reuel Khoza, the new interim chairperson of state asset manager the Public Investment Corporation, at the Sunday Times Directors Event in June 2015 in Johannesburg. (Photo by Gallo Images / Sunday Times / James Oatway)..

The Public Investment Corporation is working on boosting staff morale and restoring its image, but interim chair Reuel Khoza says "much more" must be done to rebuild it after two governance interventions and a year of intense public scrutiny.

In his address in the asset manager's annual report for the financial year ended March 31, 2019, Khoza acknowledged that the institution had not been immune to "ostensible" lapses in good corporate governance, nor had it been "sufficiently insulated" from political and other external influences.

The PIC manages assets worth more than 2trn, including on behalf of the Unemployment Insurance Fund (UIF) and the Government Employees Pension Fund (GEPF).

In July 2019, Finance Minister Tito Mboweni appointed the interim board, after the previous board collectively resigned in February. Later that month Khoza was elected board chairperson, a change from the usual pattern where the deputy finance minister is made chairperson.

"During the year under review, the PIC come under sustained public scrutiny in the media, which damaged the organisation's reputation," Khoza said.

Allegations levelled against some senior officials at the PIC relate to the flouting of investment processes, improper transactions, and abuse of positions or privilege by some employees.

Interventions

As a result, the PIC was subjected to two independent governance interventions.

The first, appointed by the finance minister in July 2018, was an independent forensic investigation into allegations against former CEO Dan Matjila and chief financial officer Matshepo More.

In October President Cyril Ramaphosa appointed a commission led by Justice Lex Mpati. Over eight months the commission heard from 77 witnesses – which include former PIC board members and businesspeople who had dealings with the PIC. It will submit its final report with findings by October 31.

"The board will consider and develop a plan to implement recommendations once it receives its report," Khoza said.

He commented that both interventions, coupled with "prolonged negative publicity" impacted on the "image, performance and staff morale" of the PIC. Khoza said the interim board has been working to boost staff morale, win back market confidence and ensure the business is conducted with "high levels of professionalism, fairness, integrity and diligence".

"There is no doubt we will need to do much more to restore the PIC's credibility and salvage what is left of its reputation."

The board will prioritise stabilising the organisation, filling critical senior positions and that of the CEO and reviewing its policies, Khoza said.

Regressing audit opinion

Acting CEO Vuyani Hako noted that governance issues not only impacted the market and the staff's perception of the PIC, but also that of the Auditor General of South Africa (AGSA).

The PIC received an unqualified audit opinion from the AGSA, but there were findings made on compliance to applicable laws and regulations. "This is a regression from the previous financial year's clean audit opinion," Hako said.

"The AGSA findings relate to non-compliance to certain laws and regulations and concerns around compliance with some policies and procedures which might result in breaches in the PIC Act," Hako said.

The PIC's management is committed to improving the control environment and implementing recommendations of the AGSA, he said.

The asset manager be using the next few months to reflect on the PIC commission's report and develop a corrective plan, he added.

In terms of the PIC's financial statement, Haku noted that the operating environment was challenging. Trade tensions and slow global and local economic growth impacted the investment environment.

Declining profits, continued risks

Low economic growth locally particularly adversely impacted the PIC's portfolio as the majority of its investments are held domestically.

The PIC's profit declined 26% to R300.4m compared to R411.2m reported in 2018. The PIC, however, declared a dividend of R80m, paid to the shareholder - government.

Hako commented the PIC's diversified portfolio helped it withstand "unanticipated market" shocks. The PIC managed to grow assets from R2.083trn by 2.3% to R2.131trn.

A total of $873.7m (about R13.2bn) has been approved for investments in the rest of Africa. A total of R15bn has been approved for impact investments, private equity and property investments.

The PIC anticipates the investment environment to remain risky and uncertain - both globally and domestically.

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