Edition: June / Aug 2017
Editorials

PUBLIC INVESTMENT CORPORATION

Wait, watch and worry

It will be a calamity should changes at the top of the
finance ministry lead to ‘state capture’ of SA’s largest asset manager.

Driving tourists the other day through a game reserve, the ranger spotted a crocodile to the vehicle’s left. So intently were passengers studying it that they didn’t notice a hyena approaching from the right.

Much the same can be said about the continued attention on ministerial changes at National Treasury. If it can now be subjected to ‘state capture’, then the Public Investment Corporation can be too. Be worried, be very worried, because there’s an aspect that has yet significantly to hit home. It’s in the replacement of deputy finance minister Mcebesi Jonas by Sfiso Buthelezi.

There’s a difference between them in that Jonas had fallen out of favour with President Jacob Zuma. There’s no difference between them in that the position of deputy finance minister conventionally carries with it the position of Public Investment Corporation board chair. There could be a difference between them, still to be seen, in the execution of their PIC roles.

Jonas made waves. An outstanding example was his insistence that the PIC, consistent with its self-proclaimed commitment to transparency, disclose to the parliamentary Standing Committee on Finance the details of its investment in the unlisted Independent News & Media SA controlled by Iqbal Survé in which the Gupta family also claimed a stake (TT Oct-Dec ’16).

However, the latest PIC annual report (for the year to end-March 2016) provides no further information. Neither does it offer an update on the fate of the PIC’s 14% stake in cellphone operator Vodacom, for which the PIC had paid R25bn and which was supposed to be made available for sale to black investors who could raise the funds without PIC assistance.

Buthelezi . . . deserves a chance

The point is that, simply by virtue of its massive size, there are nooks and crannies in the PIC’s diversified investment portfolio that escape specific mention in the annual report. To ask questions about them is not necessarily to have them answered. It happens when the PIC claims “client confidentiality” over unlisted its investments, leaving much that can evade public scrutiny.

This aspect of the PIC portfolio is itself huge. As at end-March 2016 the unlisted investments totalled R44,6bn with another R38,5bn in approvals. Whereas stock-market listed investments must be “investment grade”, says the PIC, by their nature the unlisted investments aren’t graded. They have a “developmental” focus, partially to encourage black-owned smaller and medium-sized enterprises.

That, of course, is commendable provided that implementation is free of political interventions. And that, in turn, is a function of governance; as much as it was under Jonas, so it will be under Buthelezi. The constant, to date, is that chief executive Dan Matjila remains in office albeit under a new boss.

The PIC is a wholly state-owned entity. The shareholder representative, who sets the strategic objectives, is the deputy finance minister. Non-executive directors, styled as independent, are appointed by Zuma’s cabinet. Top annual remuneration is over R700 000.

In its most recent financial year, the PIC held R1,9 trillion in assets under management. This equated to some 45% of SA’s gross domestic product. Not only is the PIC by far SA’s largest asset manager but it also carries persuasive influence, to the extent that its behaviour is commensurate with its pride as an activist investor, on the major SA corporates where it’s frequently the largest single shareholder.

More than this, in its “developmental” role the PIC can carry as much weight as National Treasury itself. Arguably, the PIC is SA’s most potent arm for implementation of the “developmental” policy integral to “radical economic transformation” that’s become subject to interpretation by its new chair.

There is a constraint. It’s in the responsibility of the PIC to achieve on its investments portfolio the returns that will enable members of its clients’ state retirement funds to receive benefits, inclusive of discretionary annual pension increments, and to avoid calling on taxpayers should pension promises fall short.

The Government Employees Pension Fund, which has 1,7m members, accounts for almost 90% of the PIC’s assets under management. Being a defined-benefit fund, in the last resort the state (i.e. taxpayer) as employer underwrites the GEPF’s pension promise. At the GEPF board level, half the trustees are employer-nominated and half are nominated or elected by employees.

Whether representative of employer or employees, either way they’re trustees. It means that their fiduciary duty is solely to the fund for the interests of its members.

As such, they’re beholden to watch Buthelezi like a hawk. And the 1,7m fund members, as well as taxpayers, aren’t precluded from watching him similarly.