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The sitting duck in the corruption fallout

GEPF has questionable investments.
The fund has some R173bn tied up in SOEs, many of which are propped up by interconnected loans. If one large entity folds, we will see a ripple effect of imploding loans. Image: Moneyweb

The 2019 annual report of the Government Employees Pension Fund (GEPF) attempts to paint a rosy picture, but the cracks are widening.

With funds of some R1.8 trillion – a juicy target for the corrupt – can its board of trustees really claim to have protected these investments from illicit dealings such as insider trading, fronting run orders, or taking large positions to boost share prices?

Many questions remain on the questionable investments made on its behalf by the Public Investment Corporation (PIC). Nonetheless, GEPF chair Dr Renosi Mokate asserts that the investment activities “remain firmly within our oversight”. And further that “we are overall satisfied with the performance of the GEPF portfolio in totality, noting the poor economic environment in which we operate”.

External audit report

The external auditors, Deloitte & Touche and Nexia SAB&T, issued an unqualified audit opinion on the 2019 annual financial statements and confirmed that: “There are no instances of non-compliance with laws and regulations that came to our attention during the course of our audit of the financial statements.”

This statement appears to be at cross-purposes with one of the findings of the Office of the Auditor-General in the PIC’s 2019 external audit report (paraphrased):

  • Investment deals entered into did not always comply with governance processes;
  • Due diligences performed were not always sufficient and appropriate;
  • One particular legal deal countersigned with a counterparty was not aligned to the structured deal;
  • Conditions precedent were not always incorporated into legal contracts; and
  • Policies and procedures were not always complied with.

Considering that the GEPF is primarily managed by the PIC, surely this comment should have been followed up on in the GEPF external audit report?

How carefully did Deloitte & Touche and Nexia SAB&T look at the massive portfolio of investments? For example, in regard to the valuation of unlisted investments, they state that “the valuation of these investments involves the use of various complex valuation models, subjective valuation inputs as well as significant levels of judgement”. Is that so? Is unpaid interest not added to the “value” of the investment?

Actuarial valuation

The latest actuarial valuation – performed by Alexander Forbes Financial Services as at March 31, 2018 – indicates declining short- and long-term funding levels.

The minimum funding level of 108.3% comes in at 18.3% above the minimum funding level target of 90%, but the long-term funding level of 75.5% falls far below the minimum funding level target level of 100%.

The contingency reserve of R137 428 million represents only 19.1% of the recommended contingency reserve of R720 893 million.

Financial results

Net investment income plummeted from R153.4 billion in 2018 to R46.8 billion in 2019, as did net income after transfers and benefits, diving from R127.4 billion in 2018 to R12.6 billion in 2019. This is mainly due to the negative adjustment in fair value of R40.5 billion (2018: positive adjustment of R69 billion).

Nevertheless, the investments yielded an average return of 2.6% (2018: 8.5%).

Impairment of investments in 2019 amounted to a conservative R8.8 billion (2018: R7.4 billion).

Impairments include:

  • AfriSam Group – R2.4 billion (2018: R0.3 billion)
  • Lancaster Group (Steinhoff) – R1 billion (2018: R4.3 billion), and
  • Independent News and Media – R0.3 billion (2018: R1.1 billion).

No mention is made of the R4.3 billion investment in Ayo.

It is to be noted that the GEPF has not disclosed its investments in ‘Other’ primary listings on the JSE for R297.4 billion, nor has it disclosed its investments in ‘Other’ secondary listings on the JSE for R33.4 billion.

The cost of management (R’000)




Executive officers’ remuneration and bonuses (4) 

10 324 7 566

Principal officer’s remuneration and bonus

5 882 4 957

Board of trustees’ remuneration and expenses (49)

13 870 11 561

30 076

24 084


Management fees




Externally managed

1 729 469 1 600 933

Internally managed

470 429 179 845

2 199 898

1 780 778

Management of investments

The assets of the GEPF are managed primarily by the PIC. However, 32 external asset managers have also been appointed. No details are provided in regard to the size of the portfolio managed by each asset manager, nor the return on investment.

Assets under management (R’000)



Money market instruments 1 42 323 368 30 228 303
Direct loans 2 41 886 273 44 244 370
Bills and bonds 3 575 542 873 576 690 673
Investment properties  14 650 804 14 296 588
Equities, primary listing on JSE 763 107 297 781 484 673
Equities, secondary listing on JSE 199 890 771 188 601 729
Equities, unlisted equities 68 063 248 62 993 130
Preference shares 5 044 182 4 379 389
Collective investment schemes 108 330 465 98 898 446

1 818 839 281

1 801 817 301
  1. The investment in money market instruments of R42.3 billion (2018: R30.2 billion) includes promissory notes issued by the Land and Agricultural Development Bank of SA (Land Bank) for R6.2 billion (2018: R6.1 billion) and the SA National Roads Agency (Sanral) Ltd for R69.7 million (2018: R0). Do the increases in the amounts due from the Land Bank and Sanral represent new advances, or unpaid interest?
  2. Direct loans include loans granted to special purpose vehicles that have been set up to make investments in established businesses, or investments in shares. Does this mean the GEPF is funding an aspirant class of rent-seekers? The GEPF should disclose a schedule of all loans, including the interest payable, unpaid interest, and unpaid capital instalments.
  3. Bonds include R23.1 billion (2018: R26 billion) with Sanral, and R84.5 billion (2018: R87.6 billion) with Eskom.

The GEPF has some R173.2 billion tied up in state-owned entities (SOEs). Many of these entities are propped up by interconnected loans. If one large SOE folds, this will result in a ripple effect of imploding loans.

And the GEPF will be the sitting duck.



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The GEPF is a sitting duck, yes, but that duck is sitting on the taxpayer and the average consumer. In effect, because they are in charge of the entire economy, Luthuli House is the actual manager of the fund. They also manage all SOE’s, as well as most municipalities, and every single one those are bankrupt, why will the results at the GEPF be any different?

The pensions of government employees are guaranteed by the government. They will receive their pensions, whether there is money in the fund or not. Where will the money come from then?

It is simply impossible for any socialist organisation to build capital, because all their efforts are focused on the destruction of capital. Socialism is the enemy of capital formation and the ally of capital destruction. A system of shared resources (socialism/collectivism) incentivises the most unscrupulous individuals in that group to exploit those resources at an ever-increasing rate. This system punishes and acts against ethical individuals who want to protect the resource. Such ethical and capable individuals get pushed aside, ignored, gets demoted, ridiculed or are killed. The most unscrupulous gets promoted and eventually lands up in parliament.

The longer the ANC stays in power, the more emaciated the GEPF will become. Then the ANC will print the money to pay the pensions. They will not increase taxes to pay the pension, they will simply devalue the currency to pay the pensions. That means every citizen who uses the rand, actually contributes to the pensions of government employees. Devaluation is a tax on the consumer and savers. Currency devaluation is a stealth tax, and is the most severe and destructive form of taxation.

To cut a long story short. If you are a government employee and if you want to be able to retire, then vote for the FF+, DA or COPE. The ANC will destroy your pension.

The cadres have plundered and looted everything else. Pension funds, also private funds, are the only sources left to loot. If you can, get your money offshore before you are also affected.

While I largely agree with you their is one other large source of funds that are available for looting. That is private health care, hence the NHI bill. It is billed as providing universal health care but I pay a large amount of tax to ensure that there is adequate health care for every one who cannot afford private health care.

As I understand it, the GEPF is a defined benefit structure. So who cares if it falls over – the SA tax payer will fund the shortfall in any case. So, dear fellow reader, scamral’s dressed-up e-toll (miss)scheme will be reflected in your increased tax burden.
The guavamunt have us by the nuts…

The poor cadre deployed government officials has better enjoy their bloated salaries while they can. Their pensions might not add up to all that it was thought to be !!!

R5.8 million in salary and bonuses for the Principal Officer? Sorry, but nobody is that clever, or works that hard or smart. And all the other “expenses”?
What a wonderful gravy train for the Nouveau Privileged. It’s time to appoint competent management for MY pension fund because this bunch is running it into the ground.

Doesn’t take much of financial knowledge to see that market-related performance / return does not form part of GEPF’s goals / targets

And Deloittes only comment on what was brought to their attention?

Not digging very deep are they?

Dig deeper and lose that lucrative job that pays plenty for there billable hours? Not on your nelly. No different to our illustrious politicians. Make hay while the sun shines seems to be the maxim in Mzanzi these days. “The sun ain’t gonna shine” much longer.

The sitting duck is the tax paying portion of the public.

“Nevertheless, the investments yielded an average return of 2.6% (2018: 8.5%).”

2.6%??? If I got 2.6% on my investments I would fire my financial adviser and my fund manager.

But wait, its not the GEPF’s money (just the money of their members) so why would they care…

But the wasted % is much higher.

GEPF will be in trouble. To many fingers trying to get into that till.

Unqualified audit ? ? ?
And the R 4 billion “donated” to AYO Investments read Iqbal Surve read ANC is all above board ?
This amount will be written off shortly.

Whoever stated that “there were no free lunches” never took ANC politicians into consideration ,that’s for sure!!

Failed State with a Barclaycard!

2.6% might sound terrible. However, the figure by itself is meaningless. What is their bench mark? Did they out perform the benchmark or not?

Never thought about front running. JSE not particularly good at investigating insider trading. Sometimes wonder what their market abuse department actually do. They should just close it, since they never obtain convictions anyway.

Markus Jooste sending friends messages to sell Steinhoff before scandal. Is it that difficult to obtain the messages, see if friends acted on receiving the information. Am I missing something? Should be a sitter to prove.

GEPF – must realize that PIC is the biggest asset manager in SA. Approximately twice the size of Allan Gray. Thus, its size is becoming its biggest enemy in terms of returns. Thus, it will be prudent to allocate funds to small asset managers.

I agree with your idea in principle. If we were like any normal free-market economy with property rights and rule of law, your suggestion would be a great solution. We have a socialist government with a BEE code and various other infringements on property rights. This implies that we are not a meritocracy. Nepotism decides who gets opportunities. Nepotism distributes the opportunities to loot to cadres and politically connected individuals.

This is a recipe for disaster and we see the evidence in all the SOE’s and at 90% of municipalities.

The investment universe available stays the same.

Would be better to fire all the managers and invest via index trackers within a global capital asset allocation framework. That would however shorten the the length of this gravy train.

Further to Sensei’s comment:
“32 external asset managers have also been appointed. No details are provided in regard to the size of the portfolio managed by each asset manager, nor the return on investment.”

SOE(s) played a very big part in the corruption that nearly destroyed the country and now they want to go on pension and live the life?

The GEPF and PIC will probably invest in overseas markets just before the next major stock market correction.

2 billion in fees to return half the inflation rate. How do these “investment professionals” live with themselves?

No different from any company on the JSE – who are unable to protect investors from insider trading…fronting run orders or taking large positions to boost share prices. African Bank, Steinhoff and Tongaat to name but a few….

Does the quoted return include the annual contribution by the members

Nothing gets the cadres interest like a trillion or two. Billions are so passe

Marxist Leninist trained ANC politicians are inherently not skilled in asset or business management. Personally these activities should be left to the private sector. Communists taking over capitalist dispensations have led to disaster and misery all over the world especially in Africa.

End of comments.



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