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More questions raised over PIC governance processes

Commission of inquiry into the money manager continues as its head of listed investments is suspended.

NOMPU SIZIBA: It was the second day of the commission of inquiry into the Public Investment Corporation. The commission was set up by President Cyril Ramaphosa late last year, and it is tasked with establishing whether there was any impropriety at the asset manager in light of allegations in the media about questionable investments made by it over the past few years.

So far, the commission has heard quite technical information about the various divisional structures, the legislative framework and what they do. The issue that overshadowed everything today was the fact that the day’s first witness, Fidelis Madavo, who is the head of listed investments at the PIC, got word from his employer that he had been suspended – and it’s said to be in connection with the controversial Ayo Technologies JSE listing early in 2018.

Well, to unpack some of the issues I am joined on the line by Warren Thompson, a senior journalist at Business Day. Thanks very much for joining us, Warren. So the PIC has suspended Mr Madavo, despite his arguing that he was out of the country at the time the Ayo deal was concluded, and that there was a delegation of authority in place in his absence. In other words, this should be somebody else’s problem.

You spoke to him directly about this – what did he have to say?

WARREN THOMPSON: Yes. Thank you Nompu, and thank you for the opportunity to talk to your audience. He directly contradicted what had been said or stated in his suspension letter. His suspension letter, which we have not seen – so we are just working on what he has told us – related to the fact that he had been suspended due to the flouting of governance processes at the PIC in relation to the Ayo deal, and specifically that he had signed documents that had effectively approved the R4.3 billion investment into the company in December 2017. But he confirmed to us that he was outside the country at the time this all went down, and he had, according to the processes in place at the PIC, appointed or delegated his authority to somebody else. In fact, he said it was the head of listed equities – I think, that was the title of the person who was then responsible.

So it all poses the question of what is really going on, given that there were also senior executives above him who had also given their approval for this investment.

NOMPU SIZIBA: Yes. Very specifically he did say that the CEO at the time, and I presume it was Dan Matjila, was the one who – because the listed investment division can get motivations for investment from anyone, and from anywhere – apparently said, hey, look into investing in this. I don’t know how he phrased it. What’s you take on that, given the fact that it’s quite normal for the CEO to make recommendations in this regard?

WARREN THOMPSON: A couple of things there. It was quite murky. He said that the deal had originated from the CEO’s office, but it wasn’t clear who had chaired the meeting and ultimately signed off on the investment that was made. It could only have been one of two people – Dan Matjila or Matshepo More, who was the CFO at the time, but is now the acting CEO.

And then the other thing that struck me that’s quite curious in this whole arrangement, and one of the points of the inquiry, is to look at how the PIC is governed. I’m not aware of any other large asset manager, certainly not in the private sector, where the CEO and the CFO have a direct say in investments. Typically what you have at something like an Alan Gray or a Coronation is the CEO and the CFO involved in the administration of the asset manager, and then the investment decisions are made by the chief investment officer or portfolio managers or, in some cases, analysts that make recommendations and then the portfolio manager may rubber-stamp them.

That’s a very important distinction that we’ve learnt over the course of the last two days, around how the PIC runs. It is the largest asset manager on the continent, but very different from the way I understand most privately run asset managers operate. And certainly I think that’s going to garner some attention when the reports by the judging party and his commissioners start coming out and evaluating whether that is potentially a way that political interference can occur in the PIC by virtue of the fact that you have the chairman of the PIC as the deputy finance minister, and he in turn chairs the board that appoints the CEO and the CFO, who in turn have direct access or authority in granting investment at the PIC. So that’s something very interesting to watch as things develop.

NOMPU SIZIBA: Indeed, because the King Codes encourage that – if you are the chairperson of a company or an organisation, it’s better that you are independent.

WARREN THOMPSON: Exactly. But this is a little different because it’s actually around the investment. And it’s obviously a listed company that we watch and we look at – where the CEO and the CFO would have a very direct say in investments like mergers and acquisitions that they undertake. But when you move into the kind of investment management space, certainly the kind of conventional state of affairs and what I’ve seen overseas is the CEO and the CFO are related and constricted only to the administration and running of the organisation, and not to the investments that the asset manager would make.

NOMPU SIZIBA: Yes. Warren, what’s your take on the fact that the PIC board put out a statement today informing the public indeed of the suspension of Mr Madavo and a senior portfolio manager as well, whose name I fail to remember. Why do you think that they released that information, or made these decisions now, at the time of the beginning of this commission of inquiry, especially because all these things happened early last year.

WARREN THOMPSON: This is what really irked the evidence leader at the inquiry, as we saw, Nompu. Advocate Lubbe actually looked quite angry and, if you remember, actually asked the commissioner to perhaps extend an invitation to the deputy finance minister to appear before the inquiry and explain why there appears to be a parallel investigation being undertaken by the PIC at the same time as this inquiry has been established and is being conducted.

So there was definitely a bit of a set-to there as to why all of a sudden this extremely long board meeting, which started at 16:00 at the PIC yesterday [Monday] afternoon and only finished, apparently, in the early hours of the morning [Tuesday] – why the PIC has decided to implement these disciplinary processes at this point? Perhaps it could be a little but of politicking, trying to avoid having some executives testify, who could perhaps present evidence that would be very unflattering on their processes. But that is just speculation at this point. We will have to get the PIC to respond to that directly.

NOMPU SIZIBA: Let’s rewind a bit. Basically, why was the Ayo Technologies listing so controversial to begin with? The PIC invests in lots of companies all the time.

WARREN THOMPSON: Yes, it was controversial because they were the only – as far as I’m aware – independent third-party investment manager that took up shares in what they called the private placement, when Ayo was offering a portion of its shares to the public. It was only the PIC that was interested in buying shares, and they took up a whole 29% stake in the company that was being sold to the public, because the rest were owned by companies and trusts related to Iqbal Survé. So it was a very big stake in a company to take, and a little – what’s the word – I guess not suspicious, but unusual in the fact that there were no other investment managers that deemed the company a worthwhile investment and whose shares they would be prepared to buy.

The other controversial aspect of it was around the valuation. I seem to recall they paid about R43/share, and some of the commentators and analysts at the time raised the issue around the fact that the company’s best asset value was probably only a couple of rand. The PIC appeared to be very happy to pay a very rich price for the investment at the time. So as to what defined some of the controversy around that investment thus far – obviously the commission might reveal more detail around what exactly persuaded the PIC to make that investment in the first place.

NOMPU SIZIBA: Yes. There is still a long way to go and, like I was saying, we’ve been getting a great deal of background. But former Reserve Bank governor Gill Marcus kept pressing to understand the state of affairs of the PIC’s executive committee. In the end the executive head of HR confirmed that indeed only some 50% of its Exco either had been suspended or had left the company.

When it comes to the CEO who left some two months back, there have been no moves whatsoever to replace him. Does this picture suggest some dysfunctionality because there is no fully constituted board and there is no head person to ensure that operations are running well?

WARREN THOMPSON: Yes, exactly. It looks like the corporation is in a little bit of disarray at the moment. Obviously two executives departed – I think one was dismissed, one resigned in relation to VBS in July last year. Then the head of information technology resigned, then we had Dr Matjila resign under a very unusual set of circumstances, where he tendered his resignation and the board decided to take it up; and then there were some question marks over whether he really intended to resign. But he went at the end of November, at around the same period, the latter half of last year, when they suspended the company’s secretary.

So, of the 12-number board, I think they are looking for five permanent replacements, as well as the fact that there’s a disciplinary process under way with the company secretary. So that kind of flux at the top of an organisation, certainly in my experience, permeates down and it makes [the rest of the business] a little bit edgy and uneasy. So, certainly after the conclusion of this inquiry and the report from judge and party, I would hope that we can find that they would be able to make those five permanent replacements and bring about some stability to the organisation. As I say, it manages the largest amount of money on the continent – over R2 trillion – and most of that is managed on behalf of government employees. So it’s very important that this organisation functions well and attracts some good talent.

NOMPU SIZIBA: Very quickly, the commission has until April to hear all the submissions and to make recommendations and all of that, and give word to the president. Do you think this is realistic?

WARREN THOMPSON: No, I don’t think so. We have only just dipped into the surface and, from the remarks made by the evidence leader, Advocate Lubbe, today, who alluded to the fact that the forensic investigation team had not even finished its work yet, I suspect that judge and party will be looking to extend those deadlines, both the preliminary and the final deadlines for the report, by a couple of months at least.

NOMPU SIZIBA: Alright, Warren. No doubt we will speak to you again in the future. Thank you very much for your time in giving us your view.

Read more:

Ayo investment passed on by Matjila – suspended PIC exec

PIC inquiry: corruption or sheer incompetence?



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The question of the need that the positions of chairperson and CEO of organisations and companies are SEPARATED and NOT filled by the same person came to the fore in the 1990’s; besides the Mervyn King on corporate governance, the Katz Commission into irregularities at the Land Bank in the late 1990’s was adamant that the two positions CAN NOT be filled by the same person.

Helena Dolney, former CEO of the bank, was cleared of all sorts of allegations – bar one – by the Katz Commission. But Micheal Katz made it very clear that one person cannot be both CEO and chairperson.

That this is still happening at the PIC (and Steinhoff) blows the mind. Doesn’t the JSE sanction listed companies that do this? Because if it doesn’t, it should!

End of comments.



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