PIC Quarterly report & challenges in executing mandate; with Deputy Minister

NCOP Finance

14 June 2022
Chairperson: Mr Y Carrim (ANC, KZN)
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Meeting Summary


The Select Committee on Finance met on a virtual platform to receive a briefing from the Public Investment Corporation (PIC) on their quarterly report, specifically regarding the challenges in executing their mandate. The Deputy Minister of Finance provided the Committee with information on the Mpati Commission reports and recommendations made to the PIC, and the progress that had been made in implementing these recommendations.

The Committee was provided with context surrounding the resignations and suspension of executives, as this had raised some concerns, and was advised that four senior executives had recently been appointed. The appointment of a chief financial officer was pending. Members asked about the PIC’s exposure to Eskom and other state-owned enterprises, which was about R125 billion. Clarity was also given to the PIC's new mandate and investment strategy which had become more structured. In summary, the key change was that the PIC had moved from one fund that covered everything to having four funds segmented per sector and region-specific. Each of these funds would be managed by fund principals, and these principals would report to their head, and their head would report to the chief investment officer.

There was engagement on the BEE status requirements in investments, and whether there were any negative implications. The PIC responded that financially sound investments were the main priority, after which transformation was considered. It was bound to the mandate and the needs of its clients. An appeal was made for a special dispensation fund to develop communities living on communal land.

Meeting report

The Chairperson welcomed Members of the Committee and the Public Investment Corporation (PIC). He said the first few slides of the PIC presentation were too detailed on the role of the PIC. The Committee was more interested in the financials, the investment strategy, transformation, strengths and weaknesses of the PIC’s approach, so he suggested the presentation should focus more on that.

Dr David Masondo, Deputy Minister of Finance, said Ms Makano Mosidi was the acting Chief Executive Officer (CEO) of the PIC, as Mr Abel Sithole was on leave until 20 June. He gave over to Ms Mosidi to introduce her team.

Ms Mosidi said the Executive Committee of the PIC joined her. This included Mr Brian Mavuka, acting Chief Financial Officer, and Mr August van Heerden, Chief Risk Officer and acting Chief Operating Officer. She added that her official role was Chief Technology Officer (CTO).

Deputy Minister's overview

Deputy Minister Masondo said that this new board had identified several immediate tasks. These included the implementation of the Mpati reports and recommendations, resolving previous bad investments, filling senior executive management positions and finalising the mandates from clients such as the Government Employees Pension Fund (GEPF), the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF).

The PIC had made considerable progress on the Mpati Commission’s findings and recommendations, aiming to correct deficiencies in policies, governance, oversight and investment processes. The reforms seek to rebuild the reputation of the PIC and the relationships with clients, stakeholders and regulators. The Mpati Commission made 377 findings and recommendations, which could be divided into three main aspects. The first set required the PIC to take action, totalling 331. Some of these required the criminal justice system to follow up on the findings. The second set required the shareholder and the Department of Finance to take action, totalling 31 findings, 15 of which were actions required by the PIC's biggest client, the GEPF. Of the 377 recommendations, 77%had been implemented, as confirmed by the advisory panel led by former Justice Yvonne Mokgoro. In the cases where the Commission had directed the PIC to conduct further investigations, independent forensic investigators had been appointed and were conducting investigations.

In this context, the PIC had also had to discipline and suspend executive management members. With the evidence from the forensic investigations, some cases were referred to the South African Police Service's (SAPS's) Directorate for Priority Crime Investigation (DPCI) for criminal investigation. There were a number of matters before courts that had arisen from previous bad investment decisions by the PIC. It was difficult to determine a completion date for each case, but the approach had been, where possible, to settle the matters out of the court. However, there were cases where matters needed to be taken to the courts to recover lost funds in the interests of workers’ savings.

On the Steinhoff transaction, as highlighted by Mpati, the PIC had accepted the Steinhoff global settlement 0ffer. It was in the process of concluding a settlement agreement on behalf of the GEPF.

There was growing stability at the executive management level, in line with the recommendations. The position of Chief Investment Officer (CIO) has been reintroduced to ensure the appropriate checks and balances between the functions of the CEO and the COO. Investment processes were now being overseen by the CIO, while the COO was overseeing the operations, and the overall management responsibility resided with the CEO. At the senior management level, the PIC had successfully appointed the CEO, Chief Restructuring Officer (CRO), Chief Transformation Officer (CTO) and the COO. The Chief Financial Officer (CFO) recruitment was currently underway.

The PIC had R2.5 trillion in assets under its management, belonging mainly to public service workers. The PIC was expected to deploy the workers’ money in both listed and unlisted asset trusts, such as fixed income equity and real estate, to generate returns for workers when they retire. In doing so, the PIC contributed to transforming and growing the economy and helped deal with high unemployment and poverty while generating better returns for clients. Along with its clients, the PIC would continue to seek an increase in the allocation for the unlisted portfolio. Internationally, the allocation to unlisted investments was moving towards 25%, which indicated that it was no longer an insignificant asset class. It did not mean the PIC would turn a blind eye to the listed side -- it would actively engage with listed entities to partner with the PIC to grow the South African economy.

Earlier this year, the PIC and the GEPF had signed a new unlisted investment mandate that provided the framework for new unlisted investments targeting transformation, economic growth, job creation, environmental sustainability and good social returns. The investment mandate with the UIF was also being reviewed, and was at an advanced stage. A similar review was being conducted with the Compensation Fund.

The PIC’s success, particularly over the next three years, would be marked by the intentional investment in unlisted investments, in line with the clients’ mandate. This would require building a team of capable professionals, working in a befitting culture underpinned by a brand that could be trusted and led by a board that instilled credibility, ethics and integrity to successfully traverse new territories.

PIC presentation

Ms Mosidi took the Committee through the presentation.

The first quarter of the presentation focused on outlining the purpose of the PIC, how it was established and its structure. Its primary focus was to deliver maximum returns for its clients to ensure they met their ever-increasing obligations. It also aimed at contributing to the broader socio-economic development of South Africa.

The main clients of the PIC were the Government Employees Pension Fund (GPEF), the Unemployment Insurance Fund (UIF), the Compensation Fund, the Compensation Commissioners Pension Fund and the Associated Institutions Pension Fund. The asset composition was broken down into three categories: listed investments, unlisted investments, and offshore and rest of Africa investments.

For the past four years, the PIC had had an Unqualified Audit Opinion and a potential irregular expenditure of R603 002 identified in the quarter under review. Internal audit was still busy with the investigation.

The PIC measured its performance based on financial sustainability, which had been partially achieved, improving compliance and governance, which had been achieved, improving enterprise risk management practices, which had been mostly achieved, and driving and facilitating transformation, which had also been mostly achieved.

 In 2021/2022, the PIC had R2.7 billion in financial assets.

The PIC's domestic challenges included electricity supply constraints, transport disruptions and infrastructure, fiscal slippage, policy and reform uncertainty, sanctions on key sectors, climate change, unemployment and social unrest, infrastructure bottlenecks and stagflation. Global challenges included Covid-19, the Russia-Ukraine conflict, hawkish central banks, inflation, and the global recession.

An update on challenges in unlisted investments showed many of the solutions proposed to meet the challenges had been implemented or were in progress. Primary among them was the design of a new mandate, with appropriate parameters and flexibility, which had been completed and implemented.


Mr D Ryder (DA, Gauteng) said that there had been two high-level resignations and the suspension of Mr Vuyani Hako, Chief Operating Officer (COO). There had not been a reason provided for this high-level suspension. During the presentation, a good explanation was given for the importance of the role of the PIC, which showed that it had a massive impact across the board, so more information needed to be provided on the circumstances surrounding the suspension of an executive member such as the COO.

The slide that laid out the macro-economic challenges South Africa was facing should be circulated to all government staff members so they could realise the urgency caused by the economic environment.

Regarding investment strategies, there was a comment on the mandate design and that the mandate was changed -- what was the previous mandate, and what was in the updated mandate? What process was followed in updating the mandate? Was there any public participation or consultation with clients?

He asked if there had been any pressure to make specific investments, specifically referring to state-owned entities (SOEs). Had there been any pressure from government, and if so, from whom and in what forum? What was the PIC’s exposure to Eskom in terms of investment? What other SOEs had the PIC been investing in -- for example, Denel? The Takatso Consortium had bought a share of South African Airways (SAA) -- what was the PIC’s relationship with Takatso? Did the PIC own a part of Takatso, and if so, how much? Had that amount changed with the unfolding of the SAA transactions? What was the PIC’s exposure to Daybreak Farms, and what steps were being taken to correct the challenges at Daybreak?

Mr M Moletsane (EFF, Free State) referred to the Mpati Commission, and said Karan Beef had initially requested assistance of R4.5 billion, later inflated to R6 billion, before settling on R5.2 billion. Due to the board's resignation, the matter had to be stopped and referred back. Was the matter still standing or had it been approved? When was the implementation of the recommendations of the Mpati Commission expected to be completed?

Mr S du Toit (FF+, North West) referred to the transformation mandate, which was high on the priority list. When making investments, the PIC considered the black economic empowerment (BEE) status and BEE rating, giving preference to companies with a high BEE rating. Did the PIC get an optimal return on investments by focusing only on race when decisions were made? It was absurd that the approach was primarily race-based instead of on a free economy.

Mr Z Mkiva (ANC, Eastern Cape) said that in 2020/2021, he had mentioned the communities under the jurisdiction of the National House of Traditional Leaders (NHTL), which was communal land that did not have title deeds. This institution looked up to other institutions such as the PIC to finance projects like "smart villages," to transform the pride of the people in those spaces, and to take these areas from consumption to areas that actively participated in the mainstream economy. Many mining operations also happened in these areas, but the mining magnates were individuals who came from elsewhere to exploit the mineral deposits. In some instances, the communities had gone to the extent of making applications for licences to mine themselves. The problem had always been accessing finance, as these areas had the mineral wealth but not the finance. Could the PIC not have a special dispensation for the communal areas of the country, as the instrument itself systematically excluded these communities from accessing the funds they contributed to? The PIC needed to change the approach towards communal land communities -- it needed to be specific to the community, and based on objective factors. He appealed to the PIC for access to a special dispensation fund for the communal land communities. This matter needed to be addressed, as it left rural communities outside the scope of realising economic transformation. These communities were still referred to as dead economies, which could only be changed if the necessary resources were available.

The Chairperson was surprised at the progress the PIC made with the recommendations of the Mpati Commission. The other part of the implementation was the legislation that would come from National Treasury, and hopefully, that would come reasonably soon. There was a sense that oversight did not get carried out, and elements of this were true, but it was exaggerated.

The PIC had good financials and a seemingly good board in the past. The Democratic Alliance (DA) started to raise concerns, and many others in government structures had also begun to pick up that not all was well in the PIC. The Committee had had various sittings and was surprised by the financials each time. The unions had complaints, but the Committee did not have the capacity or resources to actually know what was going on. Even now, with the Mpati Commission having done excellent work, the Committee did not fully know what happened. He explained that this was why he was cautious of presentations, as all may seem well, but it could actually be completely different. It would be good to know what the situation was surrounding the suspensions.

A Private Member’s Bill had been processed some time ago, and had been opposed by Treasury at the time, but it went forward with the support of the late Jackson Mthembu, former Chief Whip of the ANC. This led to union representation on the board.

He said there was a suggestion that the PIC might buy part of Eskom’s debt. COSATU seemed to have considered it as well, as it might protect jobs and help the economy grow. It was, after all, the people’s money that was being dealt with.

On the unlisted side, he did not have the technical skills to understand what it all meant, making it difficult to determine whether there had been real progress. When the troubles in the PIC came out, it was a big shock, and even though the Committee received presentations, it had not been apparent to Members. The same went for the South African Revenue Service (SARS) -- there was no evidence, and it had merely been political instinct and suspicions. It was disappointing to see how little was really known about the PIC, a body that presented international rankings against established democracies to the Committee. The Committee was, in fact, impressed with its financials.

Overall, it seemed like there had been significant progress since the Mpati Commission concluded its report, but how durable the improvements were was difficult to say. It was not a reflection on the integrity of the Deputy Minister or presenters, but Parliament did not have the capacity to do penetrating internal research to determine the efficacy of these improvements. For now, it was looking good.

PIC's responses

Ms Mosidi responded to the resignations and the suspension.

There had been two resignations: Ms Lusanda Kali, acting executive head for developmental investments and private equity; and Mr Sholto Dolamo, former chief investment officer (CIO). Both resignations had happened subsequent to the new CIO being onboarded to the team. Based on what the CIO was saying, the PIC was now working on streamlining its processes and ensuring investments were handled properly. The departure of the two individuals was due to career progressions on their side, and was a sad loss to the PIC. It had been mitigated through the new approach the PIC was taking and the kind of interventions the presenters had spoken about earlier on. For the amount of time they had spent at the PIC, it was time for them to move on. The PIC had considered it very carefully, and fully mitigated the void that might be left due to the resignations. They were serving their notice period this month, so the focus had been placed on ensuring a proper handover and ensuring that their exit was fully insulated from negatively impacting the PIC.

The suspension of Mr Hako had been precautionary, as he had not been found guilty of anything. The suspension's purpose was to ensure that the process was credible. He was a very senior member of the PIC. If allegations were laid, the process of investigation needed to have credibility and there needed to be agility in terms of concluding the investigations. The CRO was acting in his position, and the investigation was at an advanced stage. The PIC was not exposed -- the necessary measures had been taken to ensure that all hands were still on deck and that the business of the PIC could continue. The CIO would deal with the mandate and investment questions raised.

Mr Kabelo Rikhotso, CIO, PIC, said he would address investment strategies relating to the unlisted side. On the listed side, about 80% of the portfolio was passively managed. There was money that was managed internally, which formed part of the 20%, and there was money that the PIC allocated to external fund managers like Lwazi Capital, Mergence Investment Managers, and others. The PIC investment strategy followed a core-satellite approach. Core relates to the fact that the PIC passively manages quite a big book, 75% to 85%. The remaining 20% was actively managed by the PIC and allocated funds to external managers.

What were the key changes in the mandate design on the unlisted slide? At the top level, prior to the new mandate, the PIC had one overarching private equity mandate of about R70 billion. Within the mandate provided by the GEPF and UIF, the PIC had to invest across different sectors of the economy. The new structure had segmented the funds into different pods. One of the pods was dedicated to a Fund of Funds, which meant that the PIC received allocated capital from the GEPF, and then assigned these funds to asset managers who would seek investment opportunities in the South African economy and Africa. Another pod was dedicated to private equity, and that investment was in the South African region. This fund was around R4 billion. Another pod was dedicated to investment outside of South Africa -- more than 50% of the investment or revenue must come from outside of South Africa -- and this fund was around R8 billion. For this fund, the PIC needed to find opportunities or businesses that could be invested in and value extracted over the next five to ten years. Another pod focused on the agricultural sector, which had around R7 billion.

In summary, the key change was that the PIC had moved from one fund that covered everything to having four funds segmented per sector and region-specific. Each of these funds would be managed by fund principals, and these principals would report to their head, and their head would report to Mr Kabelo.

He said the process followed in updating the mandate had taken around 12 to 18 months to negotiate. The process involved the PIC team, the GEPF, or the clients’ team. This was to ensure that the PIC had a mandate that made sense, a mandate that would allow for the PIC to achieve what was expected and to ensure that the needs of the clients were met.

He said that since taking up the role of CIO, there had not been any pressure from the team or the board to invest in SOEs. The mandate that had been provided was to ensure that the PIC was delivering what the client expected, optimising the financial returns while taking into account the societal issues that South Africa had to deal with.

The PIC only had fixed income exposure to Eskom, which was currently around R125 billion. The PIC had invested in almost all of the other SOEs -- most of them were fixed-income investments with either an implicit or explicit guarantee from National Treasury.

On the question of Takatso, the PIC owned 30% of Harith General Partners (HGP). The entity that was going to invest in Takatso was HGP, and the PIC had exposure.

Deputy Minister Masondo responded to the entity's exposure to Daybreak, and said the PIC had recently recommended the appointment of a new board. Internal processes were being undertaken to ensure that everything was being done according to the law. The main aim was to ensure that the new board that was installed restored governance to ensure that the company functioned optimally. They could be provided in writing to the Committee if there were specific questions or issues.

Mr Rikhotso corrected himself, saying the Eskom exposure was R86 billion, while the total SOE exposure was R125 billion. The Karan Beef issue had become more of a legal matter, and the PIC did not have any exposure to that proposed investment.

Ms Mosidi said there were several aspects to the Mpati Commission recommendations. Some issues were for the PIC to resolve, and some were for the other parties such as departments or clients to resolve. The PIC had completed what it needed to implement -- it was just awaiting the finalisation of the audit. The advisory panel had gone through the report, and still needed to present it to the PIC board.

Mr Rikhotso referred to the transformation mandate, and said the objective of the PIC, as an asset manager, was to maximise financial returns based on a suitable risk. He stressed that the PIC would like to provide clients with superior risk-adjusted returns. The PIC bought bonds based on the potential upside and risk. On the equity side, the PIC analysed which share on the JSE to go over or under with. On the unlisted side, whatever was done here needed to align with the client mandate.

After the financial returns, a positive societal impact would be the secondary objective. Where the PIC could help black fund managers grow their businesses by allocating capital to them, or by making sure they had sufficient checks and balances for them to thrive, it would do so.

On the special dispensation fund, the PIC had a direct properties portfolio, and it had direct exposure to many malls in rural areas and townships. It aimed to assist in modernising rural areas and boosting township economies. If the PIC found a financially viable opportunity to assist in a township or rural community, it would do so. Currently, there was not a special dispensation fund for that, but it needed to be considered by engaging with the client to see if there was an appetite for something like that. The PIC was biased towards funding property investments in townships and rural areas to uplift those economies.

Deputy Minister Masondo said the PIC transformation philosophy was not based just on race -- it was also around the transformation of the industrial structure South Africa had inherited that still reflected a colonial influence. The country's manufacturing base was very low compared to many developed and developing countries. So, when looking at transformation, the PIC considered how best to transform the economic structure of South Africa. When looking at the gross domestic product (GDP) composition, it was still dominated by primary commodities. It was important to ensure that the economy did not rely mainly on the export of commodities, because when the demand for those commodities goes down, South Africa would be in trouble. That was why there had been some issues in Zambia.

Social transformation was also an important aspect of transformation to consider. Workers spend almost 40% of their wages on transport from the townships to their places of work. He echoed what Mr Rikhotso said -- the PIC did not focus solely on race, but the imbalances of the past needed to be addressed. It should not be implied that only BEE deals went bad, as that was not the case. Anything BEE was not inherently bad, as seemed to be implied. There must be debate around the issue, given our society's racial, gender and class inequalities. They needed to be open about the strategies that had to be deployed to deal with these inequalities. The PIC believed that the state needed to take measures to correct these imbalances -- in fact, it was a constitutional imperative. Some believed the market would resolve the situation through the free market process, but that was not enough alone. The state needed to enable other citizens and individuals to participate and to have opportunities in this society. He said the past was constructed through state intervention and involvement. The inequality in South Africa did not happen by accident, but deliberately. It would be disingenuous to believe that the free market would solve the inequality in South Africa.

There would be a strategy session on the special dispensation fund where these matters would be discussed. It was important to understand that the PIC acted on the mandate of its clients. The GEPF had assets of about R2 trillion, and allocated this money to different assets as a part of strategic asset allocation. The PIC would investigate how it could contribute to a special dispensation fund in a strategic asset allocation context.

Lastly, on how durable the progress being made was, it was contingent on the integrity of the people within the PIC, starting from the board. It would be up to the policies that had been put in place and strengthened. The PIC had to be held accountable by Parliament and civil society. The money belonged to the workers, so they needed to be active in the process. Had it not been for civil society, they would not have been able to roll back ‘state capture.’

Adoption of minutes

The Committee's minutes of 19 and 26 April, 10 and 17 May, and 7 June were presented and approved.

The meeting was adjourned.


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