Talks on increasing offshore investment 'progressing well', says state pension fund

The Government Employees Pension Fund, which expressed a desire last year to invest more of its members' funds offshore, says government is close to deciding on whether it can go ahead.

Speaking at the launch of the fund's 2018/20, 19 annual report on Thursday, GEPF principal officer, Abel Sithole, said while the fund increased its assets invested in foreign unit trusts, it still had close to 90% invested in South Africa.

While he did not view this as a bad thing, Sithole said the "very strong home bias" was affecting GEPF's members returns.

In the financial year under review, the fund only earned 2.6% in investment returns, which was largely driven by performance of its investments on alternative assets like bonds and fixed income.

"The engagements with [the national] Treasury have been progressing very well," said Sithole, regarding the GEPF's negotiations with government to invest more money outside South Africa.

"The recent indications indicate that we are much closer to the decision than we've been last time I spoke about the matter."

The GEPF, which had assets in excess of R1.8trn at the end of its 2019 financial year, houses almost half of the country's pension assets. In July 2018, Sithole said the fund wanted to diversify its exposure by investing more money other geographies and alternative asset classes, like unlisted investments so that it's less dependent on performance of local equities.

At present, the fund has less than 10% of its assets invested outside South Africa while private retirement funds can invest up to 30% offshore and 10% more elsewhere in the continent.

But given the current state of the economy – the country's GDP has contracted for two quarters this year – Sithole said it was understandable for government to take its time in weighing the pros and cons of allowing the fund to take money outside of the country.

"It's probably the most difficult time for an asset owner-asset allocator of our size to be given permission to take a significant chunk of money out of the country when it's probably the that the country requires that money more than anything else," said Sithole.

The annual report showed that the GEPF has R107.7bn invested in foreign collective investment schemes. Most of its money, R963bn was invested in listed local equities. During the year under review, the fund's assets grew by R16bn. It received R75bn in pension contributions from civil servants and paid our R103bn in benefits to those who retired, resigned or to dependants of members who passed away.

While its member contributions exceeded what it paid out in benefits, Sithole said they were not worried by this trend because the fund was investing carefully to ensure that investment returns cover this shortfall. He said at R1.8trn, the fund's assets continue to outstrip its liabilities.

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