Returns on civil servant pensions beat other asset managers - PIC

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 committed to restoring "sound corporate governance" at the institution, members of Parliament have heard.

Public Investment Corporation (PIC) chairperson Reuel Khoza and other executives on Tuesday briefed Parliament's portfolio committee on finance on the investment corporation's annual results for 2018/19.

The PIC manages over R2.trn worth of assets of public funds, such as the Unemployment Insurance Fund and the Government Employees Pension Fund. Despite difficulties in the past year, assets under its management grew 2.3% to R2.131trn. The PIC also boasted that its returns outperformed those of other asset managers in the market.

Its listed equity portfolio (which only invests in shares) delivered a return of 10.78% a year over the past year, compared to the average return of 10.65% from eight asset managers:  

It also outperformed the JSE's all-share index: 

For members of the Government Employee Pension (Absolute Fund), the PIC delivered a return on its listed investments of 11.45% a year over the past ten years to end-March.

According to their websites, two of South Africa's largest multi-asset unit trusts, the Allan Gray Balanced Fund and the Coronation Balanced Plus fund delivered 11.6% and 12.5% (after fees), respectively, over the same period. The average return among funds in this category (multi asset with high equity exposure) was 10.4%.

The GEPF return over five years was 6.72% a year and 5.59% over three years. 

PIC's returns for various institutions, as at end March 2019.

This slide, which compares the PIC's assets under management to local fund managers, was presented in Parliament.

The PIC managed to pay out a dividend of R80m to the shareholder - Treasury.

Fin24 previously reported that although the PIC remains financially sustainable, the low economic growth, as well as public scrutiny over the governance challenges at the PIC, impacted its financial performance negatively. The PIC's profit declined by 26% to R300.4m compared to R411.2m reported in 2018. It also regressed in its audit opinion, as the Auditor General of South Africa gave it an unqualified audit opinion with findings related to compliance issues. Irregular expenditure during the period amounted to R4.3m, partly relating to procurement. 

Commenting on interventions to improve governance at the PIC, Khoza said the board would ensure the PIC conforms to the "highest possible standards" of corporate governance and would be "intolerant to any form of malfeasance within the organisation".

President Cyril Ramaphosa last year appointed a commission led by Judge Lex Mpati to look into allegations of misconduct at the PIC. The commission ended its public hearings earlier this year and is expected to submit a final report, with findings and recommendations, to the president by October 31.

Khoza said that the board is aware that some of the findings of the Mpati Commission could be "damning and far-reaching" but the board is committed to restoring "sound corporate governance and public trust in the institution."

Executive appointments

In the near term, the PIC board will prioritise stabilising leadership and management by filling vacant senior positions.

"The board is concerned that there are too many executive vacancies in the top echelons of the organisation. An organisation that manages assets in excess of R2trn cannot be managed by managers who are in acting positions," Khoza said. "Acting positions create uncertainty for both the institution and the incumbents," he added.

The PIC's former CEO Dan Matjila resigned late last year and Vuyani Hako has been acting CEO since. Various allegations were levelled against Matjila, which were investigated. He also responded to some of these allegations made against him at the Mpati Commission.

Khoza told members of Parliament the recruitment of a new CEO has begun, the position will be advertised soon. Traditionally the CEO is appointed before other executive positions are appointed, but due to the urgency in stabilising leadership at the PIC, there is a concurrent search for the appointment of other executive positions.

Among other steps taken to improve governance at the PIC so far include separating the positions of CEO and Chief Investment Officer and have added the positions Chief Risk Officer, Chief Technology Officer and Chief Operating Officer. Khoza said the additional positions are essential for an organisation the size of the PIC.

There have also been changes to board committees. "The Fund Investment Panels were done away with to ensure all investment decisions rest with the Investment Committee," Khoza said. To enhance oversight, the Audit and Risk committee were split into separate Audit Committee and Risk Committee. These committees will have "different focal" areas, Khoza added.

Whistleblowing at the institution is also being encouraged, and consequence management will be prioritised, he said.

Further, access to the PIC will be reviewed such that the "middleman" will be removed. This will avoid substantial fees paid to "unscrupulous intermediaries" and deal originators, Khoza said.

He also assured that despite the governance challenges, the savings of pensioners and state employees being managed through the PIC will remain secure.

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