Public Investment Corporation + Government Employees Pension Fund Follow Up Meeting, with Deputy Minister

Meeting report

The Chairperson welcomed everyone and indicated that this was a follow-up meeting based on previously adopted resolutions. In the main, the Committee wanted to be provided with the rationale of the proposed Public Investment Corporation (PIC) forensic investigations, and to know if there had been any progress in investigating the alleged smear campaigns on the PIC CEO. The Deputy Minister could not attend the previous meeting due to circumstances beyond his control.

Remarks by the Deputy Minister
Mr Sfiso Buthelezi, Deputy Minister of Finance, stated that most of the questions directed to the PIC during the previous Committee meeting had been responded to in writing. However, the PIC was happy to respond to follow-up questions. Nothing had changed since the appointment of Mr Malusi Gigaba as Finance Minister and the Deputy Minister as PIC board chairperson. For instance, upon assumption of duty, the Minister had decided to reappoint five PIC board members, whose terms of office had expired. The Minister was happy about the diversity of skills and there was no reason to say the current 13 member board was not able to perform its fiduciary duties. This was a clear indication that most of the narratives in the public domain were unfounded. On the need for union representation within the PIC board, the proposals made sense and the Minister was keen to engage with labour on the modalities. However, the meeting with the unions had not yet taken place as the last Committee engagement coincided with the Medium-Term Budget Policy Statement commitments. The executive was very much open-minded and willing to engage. On PIC investment policy, the PIC is guided by Government Employees’ Pension Fund (GEPF) mandate as to how investments are to be handled. On PIC involvement in State-Owned Entities (SOEs), it had been involved before and its involvement was guided and consistent with requisite investment criteria and frameworks. This was informed by the need for PIC investment drives to be developmental in nature.

Discussion
Mr D Maynier (DA) sought clarity about the Minister’s letter to the PIC board. The letter addressed the following issues: disclosure of information, and requests for terms of reference on PIC forensic investigations in respect of its audit reports. He wanted Deputy Minister Buthelezi to confirm that the board had not met the Minister’s requests as yet.

Ms P Mabe (ANC) asked for the names and credentials of current board members to determine if they were fit for purpose.

Ms V Mente (EFF) asked about the conversations that the Minister would have with the unions. What were the modalities given that there were numerous unions representing workers? Were the discussions going to look into changing the PIC Act?

Deputy Minister Buthelezi, in response to Mr Maynier, said the PIC board would want to first have discussions with the Minister before moving forward on the identified issues. The discussions had not taken place as the Minister was on a global roadshow following the MTBPS presentation. He assured the Committee that the board was constituted by people with credentials beyond dispute. The PIC was in capable hands. Also, the PIC chairperson has no special powers and it was best that way. However, if Members had any suggestions, they should be shared with the PIC.

Mr Maynier asked if it was correct to conclude that no terms of reference had been furnished to the Minister as per his request in October. Why did the PIC take such a position?

Deputy Minister Buthelezi said the board would first want to engage the Minister to clarify a number of grey areas. Whatever comes out of the discussions would be within prescripts of the law. He emphasised that the relationship between the Minister and the PIC board was not adversarial and the idea was only to have discussions before any decisions are taken.

Mr Maynier asked if the PIC board had instituted investigations to unearth the individuals involved in the “political hit” on its CEO.

Deputy Minister Buthelezi replied that it would be presumptuous to say the alleged smear campaign was a “political hit” as the authors of the emails were still unknown. Fairness in dealing with the matter was paramount. The ethics committee of the PIC board was seized with the matter and would report back on the outcomes.

The Chairperson pleaded with the Deputy Minister that the Executive meet with unions at the earliest convenience. Also, what was the PIC doing to deal with investments in unlisted companies with low returns?

Deputy Minister Buthelezi acknowledged the urgency of holding discussion with the unions. On investments in unlisted companies yielding meagre to no returns, the board was seized with the matter and had recently met with management. Management would be presenting to the board on the way forward in due course.

Dr Dan Matjila, PIC CEO, said investigations were being conducted by an independent firm on behalf of the board. The firm had already reported to the audit and risk committee and would report to the full board on 17 November. On unlisted companies, the Committee had to look at the issue from a portfolio context. Portfolio diversification is key and PIC was looking into how the non-performing investments could be turned around in the long term.

Government Employees’ Pension Fund (GEPF) presentation
Mr Abel Sithole, GEPF CEO, took the Committee through a presentation on the work and performance of the Fund. It is the largest pension fund in Africa holding R1.67 trillion worth of assets among 1 273 784 active members and 423 130 pensioners and beneficiaries. Government is the sponsor of the Fund but GEPF is a juristic entity, implying it is separate from government.

On its investment mandate, most GEPF investments are managed by the PIC. GEPF appointed PIC as an investment manager with the authority to act as its agent in managing and administering investments on its behalf. The investment mandate is subject to specified investment guidelines regarding the Strategic Asset Allocation (SAA) agreed to with the Minister of Finance in fulfilment of section 6(7) of the GEP Law. The major unlisted investments are Isibaya Fund I and II, holding around R30 billion and R70 billion respectively. Private equity is composed of the South African Private Equity Fund II (R8.5 billion) and the Rest of Africa Private Equity Fund I (R6.5 billion). On developmental investments, the GEPF aims to invest 5% of total assets in developmental investments. The development investment portfolio was managed by the PIC on behalf of GEPF and structured as follows: Energy infrastructure; Social infrastructure; Economic infrastructure; Priority Sectors; SME Fund; Environmental Infrastructure; and Rest of Africa Developmental Investments.

Investment monitoring involves performance monitoring through: the master custodian; detailed monthly reports; compliance reports and performance monitoring through the PIC. GEPF was committed to responsible investing. Consistent to this, the GEPF believes in integrating Environmental, Social and Governance (ESG) factors into investment decisions. The Fund also recognises its role in society, specifically the commitment to integrate ESG factors into its investment policies for the long-term sustainability of the Fund. Shareholder engagement also takes place according to the policy. On Benefit Enhancements, GEPF had finalised negotiations on the following benefit changes/enhancements: Preservation Fund; Increased Funeral Benefits (gazetted); Child’s Pension; Market Value Adjustment (gazetted); as well as Benefit Discharge Anomaly (gazetted).

To enhance member services, GEPF had successfully implemented a queue management system; electronic submission of claims; and a self-service function which is in pilot phase. On its communication drive, GEPF undertook roadshows; retirement member campaigns; newsletters; mobile vans, and media campaigns. Also, the Fund had recently received its 20th unqualified audit report; reviewed all governance related policies and Board Charter, and approved a combined assurance model.

Discussion
Mr A Lees (DA) asked at what point the State could intervene as guarantor in terms of performance of the Fund. Does the GEPF get involved in any form of campaigns to persuade its membership to invest their savings with GEPF? Also, what were the reasons for not availing funding to South African Airways (SAA), and given the changes, was the position going to be revised? How far was the PIC prepared to invest in Telkom shares at this stage? He expressed concern about the drop in GEPF equity as presented in its accounting books. The loan balances had also jumped markedly. It seems there is a problem at Independent Media and that the PIC could not easily get the GEPF money out of the investment. This would seem to indicate a possible loss to the GEPF either in part or all of it. From the information provided by the GEPF it seems that Independent Media is not paying interest on the loans that date back to 2013 and therefore the outstanding balances are growing. In addition, the value of the shares in Independent Media that the PIC bought in 2013 have reduced from R 167 million to R95.3 million. He asked for explanations.
Mr Maynier asked the GEPF, given the exposure to government and SOE bonds, if it had any plans to mitigate the risk should South Africa’s sovereign credit rating be downgraded further towards the end of the month. A significant number of analysts, economists and political commentators are of the view that at least one ratings agency will move to downgrade South Africa’s local currency debt rating to junk status at the next ratings review scheduled for next Friday, November 24.
Ms Mabe asked about unclaimed pensions appearing in GEPF books. Was the money lying idle or being reinvested? Also, what was being done to assist claimants in rural areas?

Mr D Hanekom (ANC) noted that the PIC and GEPF had to serve their clients and members respectively. The developmental component of their mandates was also well-appreciated, and it included investments in SOEs. However, when SOEs’ conduct becomes counter-developmental, was it possible for PIC to put pressure so that they start doing the right things?

Mr F Shivambu (EFF) noted that Members had expressed concern about what was perceived to be undue influence by Treasury in the PIC operations, and the need for assurance that workers’ money would not be abused. He asked about other mechanisms that could be put in place to insulate PIC from the problems bedevilling SOEs; Eskom in particular. What else could be done to improve the situation because they seems to be no improvements despite various attempts at intervention? Also, what initiatives was PIC engaged in to ensure that workers’ funds invested by GEPF immediately benefit workers. Empowering workers and addressing their immediate challenges was important.

Dr Matjila told the Committee that SAA had not met the corporation’s investment criteria. He cited the governance and management crisis afflicting the national carrier as well as its poor balance sheet as reasons. However PIC was seeing positive changes. The board has been strengthened now, the CEO has been appointed. Now the turnaround plan has to be implemented and unfortunately it will take a few data points to convince PIC that the turnaround strategy is working. Once PIC has enough data to be convinced that it has turned around, the balance sheet is looking much better and there is stability, then it will consider the request. The Telkom issue was sensitive as it was a listed company, and the PIC would participate to the extent that it satisfies its investment benchmarks. On downgrades, it was a difficult one but PIC recognised the importance of asset and economic growth. Also, the corporation was finalising its SOE engagement policy mindful of the prevailing challenges in most SOEs. He added that the PIC is “working on an exit strategy” with regard to its investment in the Independent Group.

Mr Sithole replied that the Fund took a conscious decision that its members should enjoy their benefits whilst they still could, before they retire. Consistent to this, schemes such as the SA Homeloans and Eduloan were part of the package. Most importantly, GEPF members were being afforded the opportunity to be part of B-BBEE deals to enable meaningful economic participation. Also, the Fund had no interest in retaining any unclaimed benefits as it derives no benefit from them. The focus was to safeguard member pensions before anything else.

Mr Shivambu asked for much more comprehensive responses especially on the Eduloan and SA Homeloans schemes. How many GEPF members have benefitted thus far? Were these schemes any different from offers in the private market? With reference to PIC’s accounting books, what was the context of having R38 billion, a huge amount of money, sitting with Coronation, a private fund manager?

Dr Matjila replied that back in 2009, when the black asset management program was initiated, a bulk of PIC funds sat with the traditional fund managers. However, PIC was gradually redirecting the funds to black-owned fund managers, and the transition was still underway. It was a portfolio mix that brought good yields.

The Chairperson suggested PIC and GEPF furnish the Committee with comprehensive written responses within seven days.

Briefing by Parliamentary Legal Service Unit on the PIC Bill
The Chairperson asked the Parliamentary Legal Services Unit to give an overview on the way forward in relation to the proposed introduction of a PIC Bill. He noted that the Democratic Alliance (DA), through Mr Maynier, sought to introduce a private Members PIC Bill.

Ms Nomthandazo Mpikashe, Legal Advisor, Parliamentary Legal Services Unit, stated that if the Committee decided to come up with a Committee Bill, then due process had to be followed. However, private Members also have a right to bring Bills to Parliament and the latter has a duty to process the Bill if it deems necessary by considering a motion of desirability. As due process would have to be adhered to, a Committee Bill could only be introduced in December 2017.

Mr Maynier said on the basis of the draft private Member Bill, the DA had published its memorandum setting out the objectives and principal clauses of the Bill. In terms of the rules, the memorandum had to be gazetted for a period of 30 days and the window had already opened on 31 October. The Bill spelt out the constitution of the PIC board, its client base and the powers of the Minister to ensure greater transparency at the PIC.
The Bill would hopefully be finalised by the first week of December 2017.

Congress of South African Trade Unions (COSATU) input
Mr Matthew Parks, Parliamentary Liaison Officer, COSATU, welcomed the spirit of the discussions. COSATU noted that despite the recent and worrying media headlines, the PIC and the GEPF are well run. In fact they have been consistently ranked highly internationally for their clean audits and sound corporate governance. However,COSATU believes there are areas where the work of the PIC as well as its oversight and accountability can be further strengthened.

On the PIC Board: the existing PIC Act should be amended to remove the Minister’s de facto unilateral and sole discretion to appoint its Board; the Act should be amended to require union representation on the PIC Board. This should be mandatory and provided for in law and not voluntary or dependent upon the good will of a Minister, and should be selected by the GEPF as the shareholder and in proportion to representation by unions at the Public Service Coordinating Bargaining Council (PSCBC). As per industry norms, 50% of the PIC board should be union (depositor) representatives selected by the PSCBC in proportion to its composition; there should be space for a parliamentary role in selection of the non-union members of the board. Further engagement would be needed on this issue to balance the rights and responsibilities of the GEPF as the main shareholder as well as the value in having a parliamentary role in deepening transparency and accountability. There must be checks and balances on the powers of the PIC Board chairperson. It cannot be an executive chairperson with powers to interfere in the daily operations of the PIC as occurred at SAA, Eskom, SABC and others previously.

On the PIC mandate, the Act must be amended to provide for checks and balances upon the Minister to issue directives to the PIC Board. Such directives must receive the support of the GEPF before being issued to the PIC Board. They must also be in line with the PIC’s mandate and not simply referred to as in the “public interest” as currently provided for in the PIC Act. PIC investments must be required to be done in line with the nation’s development objectives, creating and protecting local jobs, sustainable development, building a capacitated developmental state and the transformation of the economy and society; permission must be sought from the GEPF before any significant or out of the norm investments are made by the PIC or changes to its mandate are sought; provision should be provided for in the PIC mandate to provide for a housing scheme for GEPF members.

On the need for PIC accountability and transparency: the PIC should be required to submit annual reports to Parliament and open all its books to public and parliamentary scrutiny. Also, its reports must be made available on the PIC and Parliamentary websites.

Discussion
Mr Shivambu said the Committee had agreed in principle during the previous meeting that the PIC Act had to be re-looked. The Bill could be presented before Parliament whichever way. The most important aspect of the Bill would have to be on the appointment and composition of the PIC board. The new PIC Act would have to stipulate a parliamentary process for board appointments mindful of the experiences in SOEs. The PIC must be insulated from undue influence. There must not be leeway for any forms of abuse. Also, the PIC must be legislated to be the exclusive manager of the GEPF.

Mr Hanekom agreed that the contents of the proposed Bill was what was important, not how it would be presented before Parliament. He noted the overlaps in the proposals among stakeholders. The Committee had to build and consolidate on that.

Dr Renosi Mokate, GEPF Chairperson, noted the positive proposals being brought forth by Members and the unions. The principles that underlie the Bill proposal seemed reasonable. The PIC would make a proper and comprehensive submission at the appropriate time.

Dr Mkhwananzi said the PIC management had perused the gazetted Memorandum and the board would to meet to agree on its position.

The Chairperson emphasised that the Committee should not waste time, and ultimately, the majority would have to decide. He felt the proposals should be taken as a package and ensure they are implementable. Also, there were market sensitivities which needed to be acknowledged when calling for more transparency at the PIC. Therefore, the Committee could only make a political call. Unions needed to unite and have a unanimous definitive view if possible. He believed the Bill ought to be introduced as a Committee Bill rather than a private Member Bill. He thanked Mr Maynier for bringing the Bill forward, and everyone for their concerted effort.

The meeting was adjourned.