South African Probe Told Politicians Mustn't Chair PIC Board

(Bloomberg) -- South Africa’s Public Investment Corp. would be better off without the country’s deputy finance minister chairing its board because it inadvertently exposes the continent’s biggest money manager to the perception of political interference, a former board member said.

The PIC, which invests more than 2 trillion rand ($147 billion) in government pension and other social funds, “can still be held to account by treasury through the rigorous oversight that National Treasury already provides over its financial performance, without having a serving politician on the board,” former Non-Executive Director Claudia Manning told a commission of inquiry on Tuesday.

Further, the fund manager would benefit from a “practice common to many commercial financial institutions to invite independent, seasoned, often retired executives to act in an advisory capacity to management, especially when complex transactions are being considered,” she said.

The commission, probing allegations of impropriety at the institution, on Monday was told the PIC was reckless with pensioners’ funds when it invested about 90 billion rand in bonds of embattled state-owned utility Eskom Holdings SOC Ltd. As the most influential investor in South Africa’s economy, the PIC is being scrutinized after a year where half the executive committee has been suspended or resigned. That included Chief Executive Officer Daniel Matjila, who quit in November.

This week’s hearings were extended by a day into Wednesday after a suspended official agreed to testify, a person familiar with the matter said.

Manning resigned on July 22 after Deputy Finance Minister and Chairman Mondli Gungubele “revealed that he had no confidence in the board and in fact accused it of having acted improperly,” in relying on the views of the then CEO over allegations of impropriety made against him by an anonymous whistle-blower.

She also recommended that the PIC’s board, through the investment committee on which she also served, be given a “greater line of sight into investment decisions.” This comes after the money manager agreed to invest in a local technology company in late 2017, a deal that internal audit head Lufuno Nemagovhani last week said had flouted processes and for which two employees were suspended.

Issues of concentration risk, changing the delegation of authority and single-borrower limits were frequently discussed by the investment committee and “several pieces of work were in progress around strengthening the overall risk framework,” Manning said.

In May, the investment committee recommended to the board that on listed investments, delegation “immediately be changed to be brought down to 2 billion rand,” from about 10 billion rand. That would mean that any new deals of more than that limit would need to approved by the investment committee and not only by management.

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