Wednesday, January 26

GEPF will cut allocation to PIC unit

Africa’s largest pension fund hopes to cut the amount of money it allocates to a division of the South African Public Investment Corporation that to date has helped it meet some of its environmental, social and governance aspirations.

The South African Government Employee Pension Fund allowed a R70 billion allocation agreement with the PIC, the continent’s largest fund manager, to expire in March and is now negotiating a new mandate. That, according to GEPF Chief Investment Officer Sifiso Sibiya, will include “introducing greater consequence management” for poor investment decisions.

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The GEPF’s decision comes after the R2.34 trillion PIC was the subject of a judicial investigation that focused on its Isibaya Fund, which makes investments in unlisted assets and focuses on black economic empowerment transactions and projects of social infrastructure. While the GEPF, which oversees R2.09 trillion, will still benefit from the money that has been spent, new investments cannot be made without a new mandate.

The so-called Mpati Commission questioned the governance of the division and the failure to comply with investment procedures. Since then, several senior PIC officials, including former CEO Dan Matjila, have left the organization.

“There would be a reduction, the extent to which it will be communicated once the agreement is in force,” Sibiya said in an interview on November 22.

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Sibiya said the size of the allocation would also be influenced by the impact that the Covid-19 pandemic has had on business and on the pension fund’s own strategic asset allocation. While it may take up to a year to agree on a new mandate, the goal is to do so within six months, he said.

Isibaya is key to the strategy of both the GEPF and the PIC in terms of addressing South Africa’s social inequality and environmental challenges. The unit “provides financing for projects that generate financial returns, while supporting positive long-term economic, social and environmental outcomes,” according to the PIC website.

A decision can be made to make more investments in unlisted assets with the help of the PIC, he said.

Since the Mpati commission began its investigation in January 2019, the Isibaya Fund has faced criticism.

In May, its staff wrote to the PIC’s top management and its investment committee to complain about how the unit was being run, saying that the expiration of the mandate had caused an “existential crisis.”

In October, the PIC said Isibaya had missed its annual investment target by 72%.

People familiar with the situation, who asked not to be identified because the discussions are not public, said increased scrutiny of the unit slowed decision-making and jeopardized some existing investments. That scrutiny includes a stipulation that an individual cannot make any investment-related decisions.

“The investment committee is now comprised of two committees, for listed and unlisted investments, to specifically address long delays in the process of selecting and supervising unlisted investments,” the PIC said in response to inquiries.

Companies affected by the slowdown in decision-making at Isibaya include ZAR X, a stock exchange whose license was suspended in August over liquidity and capital adequacy concerns, and Daybreak Farms, a chicken producer, they said. two people, who asked not to be identified because the discussions are not public.

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In the case of ZAR X, it took the PIC, which owns about a quarter of the company, from February to September to make a decision on an investment from a Hong Kong-based investor, by which time the deal had collapsed. said one of the people. Daybreak, in which Isibaya has invested 1.2 billion rand, needs additional funds, but a decision cannot be made until a new mandate is established, another person said.

The PIC did not respond to inquiries about ZAR X and Daybreak.

© 2021 Bloomberg

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