Issue: September/November 09


Action stations

GEPF moves into gear. Asset managers follow its lead. Private-sector pension funds, take note. Something big is in the making. It begs their participation.

Oliphant...passion for PRI

Oliphant...passion for PRI

There have been so many false starts to “shareholder activism” in SA that the concept carries the oomph of a tattered cliché. By its nature unseen is behind-the-scenes “engagement” with companies by institutional investors, purported or real, as successive King codes and the aborted Financial Sector Charter have contemplated; but it’s rarely divulged so its effectiveness isn’t apparent. Too often seen, at least in the estimation of the companies he irritates, is lone ranger Theo Botha; but he isn’t taken as seriously he might deserve because he carries no clout.

Then, of course, there’s the Public Investment Corporation; but it’s inclined to shoot from the hip, without apparent policy consistency, except for voting routinely and ineffectually against directors’ unfettered authority to issue new shares. And there’s also the odd fund manager, Fraters being the notable example, which courageously pushes in the public space; but it’s a smallish outfit, usually campaigning in isolation.

Where, however, are the pension funds? Where are they in using their influence – as the largest single category of beneficial investors in JSE-listed companies – to promote the environmental, social and governance (ESG) components of corporate activity, the muchheralded “sustainability” of companies both in their own operations and in their broader stakeholder responsibilities?

At last, at long last, a pension fund has taken the lead. It happens to be the largest in the land. With over R700bn of assets under management, more than a million contributing members, big toes in dozens of listed companies and the imprimatur of government which appoints half of its trustees, none dare ignore the Government Employees Pension Fund.

The first neon-lit sign that it intended a more active stance was when, in 2006 as the world’s twentyfirst largest fund, it became a founding signatory of the United Nations Principles for Responsible Investment (PRI). The GEPF voluntarily committed itself to promoting integration of ESG issues into the investment mainstream (TT Dec ’06-Jan ’07).

The second, in recent months, is the transfer of GEPF assets from the PIC to registration its own name. The third, allied to it, is setting up the organisational capability for PRI implementation. From new offices in a Pretoria financial node, separate from the pensions administration, newish appointments Maemili Ramataboe as principal officer and John Oliphant as head of investments have spearheaded formulation of a responsible investment policy which they fully intend to effect (see box).

There are compelling reasons to anticipate that theirs won’t be another false start. For one thing, the GEPF’s sheer size and legitimacy are sufficient to make companies cringe. For another, its muscle is complemented by money. SA institutional fund managers – about two dozen of whom have subsequently signed the UN PRI too – will know what’s good for them if they want to compete for slugs of the GEPF’s external asset management.

Of course, there’s also friendly persuasion of companies being monitored by PRI co-signatories who’ve formed a network to encourage the principles’ adoption. Yet, if this first-choice friendly option fails, as a former US president once noted in a different context: “Once you’ve got them by the balls, their hearts and minds quickly follow.”

To get traction, the GEPF’s focus will be on hearts and minds by stimulating PRI awareness amongst such a wide band of stakeholders as government, organised labour and the business community. Its programme will be under way within weeks. Other pension funds, earnest about their business, would do well to listen. Then sign on. It should be wholly consistent with the investment policy statement that funds are obliged to compile, and presumably to take seriously.

For they are in so powerful a position, as asset owners, to shove ESG in the right direction. There’s mountainous evidence that companies which adhere to ESG best practice are the best performers over the long term, and pension funds are about the long term. Socially-responsible investment and corporate sustainability go hand-in-glove (TT June-Aug ’08).

PRI is broader than socially-responsible investment. It comprises guidelines better to align investors with the broader objectives of society, and isn’t prescriptive. It seeks to integrate ESG standards, where consistent with institutions’ fiduciary responsibilities, into the investment mainstream.

“We must put ESG into a South African context and identify the issues that concern us,” Oliphant urges. “For example, we must look at companies’ policies that impact on the provision of clean water, on their approach to HIV/Aids, and on their implementation of employment equity.”


One aspect that will differ from SA’s softlee-softlee/ nicelee-nicelee shareholder activism of the past is intimated in the sixth UN principles. It’s disclosure. With over two dozen asset managers having signed, they’ll be scrutinised for compliance with the “possible actions” that the PRI suggests:

  • Disclose how ESG issues are integrated within their investment practices;
  • Disclose their active ownership activities (voting, engagement and/or policy dialogue);
  • Disclose what is required from service providers;
  • Communicate with beneficiaries about ESG issues;
  • Report on progress or achievements relating to the principles.

So far, the GEPF is the only asset owner (principal) to have signed the PRI. All the other signatories are asset managers (agents). This is not as it should be. Although the agents are beholden to take instructions from their principals, in practice it’s the agents who usually call the shots. This has complications.

Amongst them are possible conflicts of interest. By way of one example, most asset managers are owned by larger financial-sector groups which service a multiplicity of corporate clients. Without a clear instruction from their principal, will they vote on a governance issue in a way that might upset a client of their corporate finance department? Or, when it comes to executive remuneration, will they seek to contain excesses when their own bonus structures might be comparable?

There is an answer. A simple one. It’s for the trustees of pension funds, the principals, to get into the forefront and put their mouths where their members’ money is. The PRI is there for them to sign too.

Further, he notes, business and society co-exist. Why then, he asks, is there not more passion about responsible investment? “There’s too much focus on financial instruments and too little on the real economy.”

On this score, the network of PRI co-signatories – who’d better be cautious about collusion in voting at shareholder meetings, following the ruling of the Securities Regulation Panel on the Comparex matter (TT June-Aug ’09) -- will need to motivate regulatory reform. Regulation 28, which defines prudential limits for pension funds’ portfolios, allows a maximum of 2,5% for investment in “other assets” including derivatives. After filling their boots with such conventional assets as listed equities, bonds and the rest, little is left for venturing into the unconventional.


James Gifford, executive director of the UN Principles for Responsible Investment initiative, revealed that 15 significant private equity firms, including KKR, had now signed up to the PRI’s code . . . Why have they done this? Not to be nice but to win and retain the business of pension funds, which are increasingly demanding that anyone investing their money does so responsibly.

“The PRI is not about sacrificing financial returns. It is about promoting active ownership,” Mr Gifford explained.

– Financial Times, Aug 10

A difficulty is in the trouble it takes for pension funds to find appropriate “other assets” that will show them a risk-adjusted return. Once upon a time, an investment in fledgling MTN was considered highrisk. Look at it now. Not too long ago, shopping malls in poorer townships and rural communities were considered non-starters. Now, some are showing secure returns higher than retail mega-complexes in the affluent suburbs.

Seek and they will find, might be the watchword. Oliphant, particularly alive to possibilities for enhancing job creation, rolls off possibilities. Lending money for the purchase of taxis is one. Fitted with trackers, he suggests, the assets are easy to find and manage.

Pension funds should be looking for the dual impact of financial return and social impact. But the preponderance of trustees still seem, either through lethargy or fear of stepping outside their fiduciary duty, to stray from their comfort zones. Well, check what the blue chips have been doing to their funds’ performance. Investment in commodities, to name a popular category, isn’t exactly riskless.

The succinct point is that ‘responsible investment’, as opposed to any other investment, need not imply sub-optimal returns. In fact, the contrary often holds. The more institutional investors focus on ESG adherence, the more likely it becomes that companies – the larger and particularly the smaller -- will find it easier to raise capital by complying with the standards.

It’s also likely that, as the GEPF gets into full swing, pension funds will increasingly use the JSE’s SRI index as a performance benchmark. To the extent that they do, more companies will strive to meet the index criteria. The impact then compounds.

To do well by doing good is the tantalising mantra of responsible investment. That’s the carrot. In the background, where unions have been screaming for stronger investment focus on job creation and similar real-economy priorities, there also lurks the stick of prescribed assets that Cosatu threateningly waves (TT March-May ’09).

Which is it to be?


Maemili Ramataboe, principal officer, qualified as a chartered account in 1993 while working as an accounts manager at Standard Chartered Bank. She was previously treasury manager of the Lesotho Highlands Water Project. In 2001 she joined Shell/BP where one of her portfolios was principal officer of its defined-benefit and provident funds. In 2004 she graduated with an MBA from the University of the Free State.

Amongst her memberships of various professional bodies, she serves as a director of the Principal Officers’ Association.

John Oliphant, head of investments and actuarial, holds a BSc in actuarial science and a BSC (Hons) in advanced mathematics of finance from Witwatersrand University. Prior to joining the GEPF, he was head of quant investing at Stanlib where he managed longonly funds as well as hedge funds.

A key driver behind the GEPF’s responsible-investment policies and setting up the UN PRI network in SA, he also serves on the investment committee of the Pan African Infrastructure Development Fund, the advisory council of the Southern Africa Pension Investment Forum, and the advisory committee of the JSE SRI index.

Ramataboe on the record

In this question-and-answer interview, GEPF principal officer Maemili Ramataboe explains the assertive stance on ‘responsible investment’ that the fund has taken.

Ramataboe...serious initiative

Ramataboe...serious initiative

TT: What’s significant about the transfer of shares from registration in the name of the Public Investment corporation to the GEPF?

Ramataboe: The transfer of assets was undertaken to reinforce governance at the GEPF. Ownership of these assets vests in the GEPF. Registration in any other name might distort or blur transparency and accountability in relation to the fiduciary responsibility of the GEPF board.

The GEPF is a founder member of the UN Principles for Responsible Investment. The principles require our board of trustees to integrate environmental, social and governance (ESG) issues into investment decisions. This calls for shareholder activism. Hence, in future, the GEPF board will have improved oversight.

In addition, the Government Employees Pension Law stipulates that the assets of the fund be registered in the name of the GEPF.

Your colleague, John Oliphant, has referred in various addresses to support for “grassroots tycoons”. Is there an implication of some emphasis change in GEPF philosophy towards such indirect shareholders as members of retirement funds?

Our philosophy will not change. It will be enhanced. The board recently approved a responsible investment (RI) policy which will guide our approach. It means that the GEPF will engage with companies in which it’s invested with a view to influencing those companies to factor ESG issues into their decision-making processes.

These issues are often a concern to the “grassroots tycoons”, the members of the fund. They rarely have a say on how their funds are invested. The GEPF, as fiduciary, will now take more responsibility to act in the best long-term interests of the beneficiaries.

How will the GEPF bring its influence to bear in ways that differ from the past?

Our RI policy is now in place. Part of it requires formal engagement with companies where we’re invested. We’ve set up a fiduciary structure led by me as the fund’s principal officer.

Within this structure, John Oliphant as head of investments will be in charge of a section dealing specifically with ESG research and analysis as well as engagement in line with the board’s RI policy. This will help trustees to have a better understanding of these issues. It will also provide a platform for informed and consistent application of the RI policy, in addition to the UN principles generally.

Application of RI policies, and policies in respect of proxy voting, require quite exhaustive research. Is the GEPF adequately equipped?

Research will be undertaken internally, supported through partnerships with credible external experts, and complemented by the work of the PIC. We already have a partnership with the JSE on research for its sociallyresponsible investment (SRI) index.

How will the GEPF hold companies to account?

We seek to promote awareness of our RI policy and to influence companies to integrate ESG principles. The intention is to engage with companies, not to disinvest from them.

What is RI, or SRI, as the GEPF understands the terms and intends to promote the concepts?

We strongly believe that sustainable and long-term returns form the basis of more meaningful retirement funding. And we believe that integrating ESG issues into our investment decisions will help achieve sustainability of returns. For instance, last year’s performance of the JSE’s SRI index was in line with more accepted benchmarks such as the SWIX (shareholder-weighted allshare index).

This type of performance vindicates our view that ESG should not be a peripheral investment activity, but mainstream. Our decision to subscribe to the UN principles wasn’t difficult as we could identify with them and the objectives they seek to attain.

An action in terms of the principles is to support and participate in networks and information platforms “to share tools, pool resources, and make use of investor reporting as a source of learning”. In May this year, together with a group of SA investment managers, we launched the network locally. Its three-pronged approach is to:

  • Promote awareness;
  • Capture evolving best practice on how to factor ESG issues into investment processes;
  • Examine regulatory or other barriers that would inhibit an increase in the ability of SA investors to engage with companies.

How will the GEPF improve communication with fund members and the investing public generally, both top down and bottom up, for policy formulation and implementation?

We already have a multitude of initiatives. To mention a few, with respect to our members, this year we started roadshows throughout the provinces; we issue quarterly newsletters to members and pensioners; we’re revamping our website.

But even these initiatives are insufficient. So we’re now reviewing our whole communications strategy. It will be designed to ensure more robust communication and accessibility, allowing for two-way interaction with our members.

We’re also engaging with our strategic partners. These include government, labour and the business community. We want to promote their alignment with the GEPF’s vision. To this end, we’ll soon hold a stakeholder workshop.

Given the need for prudent portfolio diversification on the one hand, and your RI policy on the other, what’s the GEPF’s approach to offshore investment?

At present, we don’t invest offshore. Our only exposure outside SA is through the Pan African Infrastructure Development Fund which invests in infrastructure projects throughout Africa.

We recently concluded our asset liability modelling. Offshore investment is an issue we’ve taken into account. Details are still under discussion.

On broad-based black economic empowerment, will the GEPF facilitate Elephant Consortium-type transactions as the PIC had done?

GEPF policy pronounces clearly on our commitment to B-B BEE. Correct and consistent implementation of this policy is important for the achievement of B-B BEE’s aims.