Edition: September / November 2017


PIC in a pickle

Forthcoming annual report will tell all. Or will it? Transparency policies must be spelled out then seen to have applied.

The Public Investment Corporation should decide for itself whether it is fish or fowl; whether it complies with the standards of transparency it requires from others or whether it doesn’t. Its annual report, for the year to end-March 2017, is due for release. Look to it for the answer. There were critical non-disclosures in the 2016 report. They relate particularly to:

  • The identities of the external asset managers engaged, and the sizes of their respective allocations;
  • The recipients of loans or investments made by the Isibaya fund, the sizes of these loans or investments and their respective performances.

What is PIC policy on making such disclosures? “There will be enough disclosure in the annual report of our investments”, says spokesperson Sekgoela Sekgoela.

Well, in the 2016 annual report there wasn’t enough. In fact, there wasn’t even a hint at the identities of the external asset managers or of the Isibaya recipients. Neither were there revelations of respective sizes and performances. It’s a mystery that these remain a mystery (TT June-Aug).

On the external managers, there’s keen rivalry for appointments. Unsurprisingly, it’s because in 2016 these managers handled 7,4% of the PIC’s domestic listed equities. That’s a significant proportion. Of the PIC’s total R1,9 trillion in assets under management (predominantly from the Government Employees Pension Fund), its listed portfolio for equities represented over 12,5% of the JSE’s market capitalisation.

The report does say that R57bn had been allocated across 14 black-owned firms, but doesn’t specify the criteria to define black ownership. In numbers that seem difficult to reconcile, it proceeds to explain that “R11,5bn was allocated to existing external managers, all of which were black-owned firms: R9,5bn to four established BBBEE managers and R2bn to a developmental BBBEE manager”.

So it’s impossible to know the level of BBBEE compliance that qualifies. This is moot as the revised Financial Sector Charter kicks in. Equally impossible is an assessment of the fairness in the distribution of allocations.

On the Isibaya division, which held an unlisted portfolio of R44,6bn, it goes without saying that
transparency should be a prerequisite. Isibaya supports over 1 000 small and medium enterprises. That’s commendable, in pursuit of the PIC’s developmental mandate, but without disclosure of recipients and exposures the PIC is vulnerable to extraneous pressures for assistance that might not always align to unbiased evaluation.

Chairing the PIC board as deputy finance minister, last year Mcebisi Jonas broke the ice when he insisted that the PIC tell the parliamentary Standing Committee on Finance about the fund’s involvement with unlisted Independent News & Media SA. This was at the behest of opposition MPs. The precedent has been created for Jonas’ successor, new deputy finance minister Sfiso Buthelezi, to tell of all exposures falling outside investment grade.

Then take the PIC investment into the Bophelo Insurance Group. With perhaps more than R500m in mineworkers’ savings unaccounted for (TT June-Aug), the Financial Services Board put Bophelo Beneficiary Fund and Bophelo Benefit Services into curatorship. What possessed the PIC to take a 30% stake? What due diligence preceded it? Will it now, to help the mineworkers, throw good money after bad?

Meanwhile, new finance minister Malusi Gigaba has told parliament that he has in mind the PIC for sinking R6bn into the black hole of SA Airways. The PIC is there to advance the interests of 1,7m members in government pension funds, not to take up obligations that will look horrible on government’s balance sheet. Since the finance minister appoints the PIC board, its credibility stands to be tested.

For the records

It’s outrageous that the unclaimed benefits in retirement funds now stand at R41,7bn. More outrageous is that the amount has ballooned from R34bn a year ago. That it’s going up, not down, points to systemic defects being unaddressed or ignored. Unclaimed benefits are benefits due to fund members, pensioners and dependents that haven’t been paid. Why not? The clichéd response is that they can’t be traced. The truthful response is that too many funds and their administrators as well as – let it be said, the regulator – are asleep at the wheel.

Some certainly do try to effect payments. Some are highly successful because of physical effort such as sending personnel to rural areas for meetings whose purpose is promoted. Some are thoughtful with creative suggestions on how technology, for instance through the databases of cellphone operators and the SA Social Security Agency, can assist (TT March-May).

It would be for the Financial Services Board, as the regulator, to bring together the parties capable and willing to help in hammering out a solution. That surely isn’t beyond its competence, particularly since it knows who they are.

Ismail Momoniat, deputy director at National Treasury and a board member at the FSB, sees the matter as a regulatory issue. He suggests legislation, presumably in the form of Registrar directives, that will compel administrators to trace and pay out benefits.

But compulsion would be limited in its effectiveness when same old, same old ineffectual techniques apply: abandoned attempts to find beneficiaries once tracing fees have chewed their benefits, increased costs to administrators passed onto funds, and records that cannot be updated without a national database compiled through cooperation between state and state-regulated agencies.

First try what’s already available. Or what regulation can require to be made available. At the end of the day it will be a matter of poor records, poor payments; or good records and good payments.

Incidentally, to make matters worse, the R41,7bn covers only funds regulated by the FSB. The gigantic Government Employees Pension Fund isn’t one of them. Also, the Chamber of Mines estimates that about R3bn in unclaimed benefits is due to former mineworkers alone. This illustrates the income and sophistication levels of those who’re losing out.

Into the streets

A movement calling itself the ‘Unpaid Benefits Campaign’ has taken off. It’s rapidly escalating to a mass scale, whose collective bargaining power invites Today’s Trustee September/November 2017 13 proper attention, and spreading from its Vaal base to protests in Johannesburg. Amongst its demands are that pension and provident funds holding unclaimed benefits:

Sebokeng community gathers to claim
  • Stop abdicating responsibility for payment of those benefits by transferring them to unclaimed benefit funds;
  • Take all reasonable steps to trace and pay each person entitled to such benefit, no matter how small;
  • Stop deducting administration and tracing costs from the benefits paid;
  • Report on progress through the FSB website.

The UBC appears to have sprung up without encouragement from any political party or trade union, for it won’t hear of interventions from either. Rosemary Hunter, former FSB deputy executive officer for retirement funds, is suspected but vigorously denies being an instigator or leader of it.

She’s too preoccupied with preparations for an application to the Constitutional Court in her litigation against the FSB over its “cancellations project” (TT June-Aug). Nonetheless, the UBS draws extensively for its contentions on the papers presented by Hunter in the court hearings already conducted.

She maintains that her UBC role is limited to assistance – information and training – for the community’s growing band of volunteers. Between them, these volunteers have so far collected claim forms and supporting documents from more than 5 000 people in the Vaal region. Finding useful the FSB’s recently-launched website search facility for unclaimed benefits, the claims will be submitted to relevant funds.

A principle of the campaign is that nobody pays a fee for the claims service it is providing.

Highly charged debate

Unfortunately, the discussion over the disclosure of fees at asset manager Sygnia is one-sided because chief executive Magda Wierzycka won’t participate in it (TT June-Aug). However, the Financial Services Board has volunteered a response.

Mpho Ntuli, analyst for information disclosure at the FSB’s department of collective investment schemes, quotes from a 2014 board notice to conclude that Sygnia has complied with its obligations. Thus it’s okay for certain fund fact sheets to declare that fees will be made available on request and for some analysts to be befuddled by the total expense ratios (TERs) where they’re shown.

Subsequent to the 2014 board notice there was a 2015 board notice. Their complexity necessitated the issue of guidance notes in 2016 and 2017. Also, if any of the Sygnia hedge funds are in life funds rather than collective investment schemes, they presumably would be subject to the disclosure requirements not of the Collective Investment Schemes Control Act but of the Financial Advisory & Intermediary Services Act.

Now expect ordinary consumers to understand such finer points. The broad point is that, whereas TT happened to fall upon Sygnia because of the attention it was drawing to itself, there might well be others within industry deserving FSB scrutiny under the CISCA or FAIS.

The desired outcome, for consumers to know and compare the fees they’re paying, is simple. Getting there seems less simple. But perhaps it could become simpler if the FSB, as a first step, were to make regulatory the ASISA standard for disclosure of effective annual cost (EAC) rather than TER.

Play it again

Sam Tsiane, dismissed by the National Union of Metalworkers as its long-serving benefits coordinator (TT March-May), is being given the runaround. With his dispute scheduled to have been heard by the Commission for Conciliation, Mediation & Arbitration on July 31, it’s been postponed until sometime after August 31.

Tsiane. . . frustrating delays

A lawyer came from Port Elizabeth to ask for a postponement because Numsa wasn’t ready, says Tsiane: “I only know that Numsa is experiencing cashflow problems because the legal department has exceeded its budget every year for the past several years. The department has more than five legal officers and a panel of more than four law firms in Johannesburg.”

So he doesn’t know why a lawyer had to be flown up, and asks himself how many times “this sort of thing” happens. Meanwhile, he’s unable to serve as a trustee on the various retirement funds sponsored by Numsa and appears itchy to spill a few beans.

Ramputa. . . early hint

TT transaction

A partnership between the ASISA Foundation, Alternative Prosperity and Today’s Trustee was announced at the retirement funds’ winter conference by Batseta chair Isaac Ramputa. The purpose of the partnership is to extend the scope and reach of TT as a digital and print platform to help facilitate the attainment of Financial Sector Charter objectives in trustee and consumer education.

Shares in the restructured Today’s Trustee company will be held equally by AF, AP and the TT founding shareholder. Offering the platform of an independent brand, he explained, participation of industry players is to be encouraged.

There’ll be further information in due course.

Arian: A Correction

It wasn’t “Arian” but Arain Solutions Group that had reported the attempted extortion of bribes by seven trustees of the Implats provident fund (TT June-Aug). The error, which is regretted, arose from following up a media article about “Arian”.

When checking, obviously no record of an “Arian” registration or website could be found. Arain is fully and properly registered with the FSB as an authorised financial services provider.