Public unions hold axe over PIC’s head
The Public Investment Corporation (PIC) recently released a set of clean financial results, as controversy over whether it will be the next major state-owned company to be captured intensifies.
The state asset manager’s books appear to be in sharp contrast with the financials of other state-owned enterprise.
The PIC’s assets under management grew by almost 4% from R1.857-trillion to R1.928-trillion. The Government Employee Pension Fund’s (GEPF) portfolio — the largest pool of money the PIC manages — grew 3% to reach just under R1.7-trillion. Almost 40% of the GEPF’s portfolio is allocated to BEE assets managers as part of ongoing efforts to promote the growth of black investment professionals.
But the results have been overshadowed by the instability at the organisation, propelled by alleged attempts to force chief executive Dan Matjila out.
Rather than allaying fears, a statement from Finance Minister Malusi Gigaba last Friday increased them. He said he was seeking a forensic audit into irregularities at the company to depoliticise the PIC. In addition he wants it to provide a list of all its investments, listed and unlisted, and their beneficiaries, to promote transparency. This was after an internal investigation by the board cleared Matjila of wrongdoing a week prior.
The PIC has not responded to the statement.
The perceived threats to its independence has public servants unions furious, and threatening to pull their money from the PIC — though this may prove a complex process.
A specialist trustee with knowledge of the GEPF said the fund sets the investment strategy implemented by the PIC. This includes the structure of the portfolios, for example what is passively managed and what is actively managed.
Although it may be argued that the use of the PIC is not part of that strategy, it does spell out where the PIC will be used and where not, he said.
The strategy must be approved by the minister. “I doubt that the minister would approve any strategy that excluded the PIC or significantly reduced its ability to invest the assets of the GEPF,” he said.
A large “core” portion of the money the PIC administers for the GEPF is placed in index tracking funds, he said, potentially making the PIC one of the largest passive asset manager in South Africa. There was little scope to manipulate these assets, he noted.
Much of the concern may be about the portfolio of unlisted investments, which forms a relatively modest part the GEPF assets.
The GEPF has historically placed a limit on any single investment made by the PIC without its consent, he said. “All these investments are discussed with the GEPF and the GEPF could make representations to the minister if they are unhappy with them, or if performance is sub-standard. The member elected and trade union-appointed trustees are well represented on the investment committee of the GEPF, which would make such a call.”
But it is these unlisted investments that has garnered controversy for the PIC in the past — such as its funding the purchase of Independent Newspapers, a transaction led by businessman Iqbal Survé.
In a submission made to Parliament last year the PIC declared the funds it had invested in the take-over of Independent Media at about R1.2-billion.
The complexity of an exit from the PIC will not dissuade unions if such a move becomes necessary, said general secretary Dennis George of the Federation of Unions of South Africa. Fedusa was well versed in this terrain and has been running pension funds for some its members for many years, he said.
The federation is planning to meet its counterparts Cosatu and the National Council of Trade Unions to propose that organised labour should review, and possibly withdraw, the investment mandate the GEPF has with the PIC.
At more than 87% of the money it manages this would devastate the PIC. Fedusa is also pushing for worker representatives to be included on the PIC board.
The federation has not accepted Gigaba’s explanation that a forensic audit will depoliticise the company. It said the move was a “fresh assault” on the PIC and Matjila.
Fedusa’s affiliates include the Health and Other Service Personnel Trade Union of South Africa, the Public Servants Association, and the South African Parastatals and Tertiary Union.
A legitimate forensic investigation requires clear terms of reference and deal with specific allegations of specific acts, George said in a statement.
A forensic investigation into “concerns of irregularities” was undefined and open-ended and could be used to remove the “guardians of our members’ pension funds”.
The ministry did not respond to a request for comment.
But Cosatu is not yet convinced that leaving the PIC is a solution. There may be worse corruption in the private sector, said its parliamentary co-ordinator, Matthew Parks, and even less control over how the money is spent.
Better parliamentary oversight, tighter investment criteria and more transparency about the governance of the PIC would be ideal, he said. Cosatu wanted to see returns for its members and investments in productive capacity that created jobs.
Parks said that Cosatu agreed with Fedusa that workers needed to represented on the board. “[The PIC] can’t be used by government as a piggy bank.”
A raid on workers’ funds to bail out a collapsing state-owned enterprise, for instance, would “galvanise people to the streets”, he said.
Through its affiliates Cosatu represents about two-thirds of public sectors workers. Combined with Fedusa this accounts for about 90% of state employees, Parks noted.
In a bid to beef up governance of the PIC, the Democratic Alliance’s David Maynier is proposing changes to the PIC Act through a private members Bill in parliament.
Maynier was confident the Bill would get wide support in Parliament, given that “concerns about the ‘capture’ of the PIC are not confined to the opposition”.
Among other things, it proposes creating a new process to appoint the chairperson of the board, a new structure for the board and that the PIC discloses all investments.
The chairperson is currently the deputy finance minister. But the Bill proposes that the finance minister appoints a chairperson on the advice of the National Assembly. Parliament would consider a list of candidates nominated by the public and the PIC’s main depositors and, be based on their qualifications, expertise and good character.
Currently the minister may issue directives to the PIC board, if it is necessary and in the public interest.
But the DA proposes that any such directive must be tabled before Parliament and published on the company’s website within 30 days of it being made.
The Bill makes the annual disclosing to Parliament of all listed and unlisted investments a requirement for the PIC.
Parks said Cosatu would consider supporting a Bill proposed by an opposition party, provided it was progressive and enhanced parliamentary oversight.