Africa Pension Giant to Cut $4.4 Billion PIC Unit Allocation
(Bloomberg) -- Africa’s biggest pension fund expects to cut the amount of money it allocates to a division of South Africa’s Public Investment Corp. that has to date helped it fulfill some of its environment, social and governance aspirations.
South Africa’s Government Employees Pension Fund allowed a 70 billion-rand ($4.4 billion) allocation agreement with the PIC, the continent’s largest fund manager, to lapse in March and is now negotiating a new mandate. That, according to GEPF Head of Investments Sifiso Sibiya, will include “the introduction of more consequence management” for poor investment decisions.
The GEPF’s decision comes after the 2.34 trillion-rand PIC was the subject of a judicial inquiry that concentrated on its Isibaya Fund, which makes investments in unlisted assets and focuses on Black economic empowerment transactions and social infrastructure projects. While the GEPF, which oversees 2.09 trillion rand, will still benefit from the money that has been spent, no new investment can take place without a fresh mandate.
The so-called Mpati Commission questioned the governance of the division and the flouting of investment procedures. A number of senior PIC officials, including former Chief Executive Officer Dan Matjila, have since left the organization.
“There would be a reduction, the extent to which will be communicated once the agreement is in place,” Sibiya said in an interview on Nov. 22.
Sibiya said the size of the allocation would also be influenced by the impact the Covid-19 pandemic has had on business and the pension fund’s own strategic asset allocation. While it may take as long as a year to agree a new mandate the aim is to do so within six months, he said.
Isibaya is key to the strategy of both the GEPF and PIC in terms of tackling South Africa’s social inequality and environmental challenges. The unit “provides finance for projects that generate financial returns, while also supporting positive, long-term economic, social and environmental outcomes,” according to the PIC’s website.
A decision may be made to make more unlisted-asset investments with the assistance of the PIC, he said.
Since the Mpati commission began its inquiry in January 2019, the Isibaya Fund has faced criticism.
In May, its staff wrote to the PIC’s senior management and its investment committee to complain about how the unit was being run and said the lapsing 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 aren’t public, said increased scrutiny of the unit slowed decision-making and jeopardized some existing investments. That scrutiny includes a stipulation that no decision relating to an investment can be made by an individual.
“The investment committee now comprises of two committees -- for listed and unlisted investments -- to specifically address long delays in the unlisted investment selection process and oversight,” the PIC said in response to queries.
Companies impacted by the slowdown in decision making at Isibaya include ZAR X, a stock exchange that had its license suspended in August over liquidity and capital adequacy concerns, and Daybreak Farms, a chicken producer, two people said, asking not to be identified because the discussions aren’t public.
In ZAR X’s case the PIC, which owns about a quarter of the company, missed an initial deadline of February and took until September to make a decision on an investment by a Hong Kong-based investor, by which time the deal had collapsed, one of the people said. A year had passed since it was first notified, the person said.
Daybreak, in which Isibaya has invested 1.2 billion rand, is in need of additional funds, but a decision can’t be made until a new mandate is in place, another person said.
The PIC didn’t respond to queries on ZAR X and Daybreak.
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