SIMON BROWN: I’m chatting with Musa Mabesa. He is the Government Employees Pension Fund principal executive officer. The GEPF had some numbers out late yesterday for the year-ending March. Musa, I appreciate the time today. Your fund’s growth on the year was up 27.5%. That’s a great return. Of course it needs to be taken into the light of the previous periods, when of course we’d seen Covid collapses happening as you went into that year-end in March last year.
MUSA MABESA: Indeed, Simon. We’ve seen a remarkable increase in the value of our investment under very extreme and difficult circumstances with Covid, and uncertainties in the market. But [we saw] the figures rebound [in] the financial markets, largely our listed equities in the bond portfolio. That contributed a lot into the market value increasing to just shy of R2.1 trillion this year as at March 1, 2021.
SIMON BROWN: Yeah. Perhaps the more important number is the sort of annualised return over the last decade, 2012 to 2021, which comes in at 8.9%. The key point there is it’s nicely ahead of inflation for that period and, as a fund manager, that’s your key point. One of them is to beat inflation and to do it over the long term.
MUSA MABESA: Correct, Simon. That is testimony to how robust our strategic asset allocation is. As a long-term investor there, the intention of the board is to ensure that we sustain payment of benefits to our beneficiaries and pensioners so this bodes well for us in that we know we can sustain the fund and the growth of the fund in the long term.
SIMON BROWN: You mentioned you did really well in the listed space under the report that came out – unlisted property dragging down returns. How much of your portfolio is in unlisted assets? You’ve got, as you said, just shy of R2.1 trillion worth.
MUSA MABESA: Yeah. Less than 5% in unlisted investments in total, so it’s a small number relative to the size of the portfolio. However, in value terms that’s a significant number – 5% of R2.1 trillion is a lot of money. So we did see a huge impact on the property portfolio, but that cuts across the entire industry.
SIMON BROWN: Property was struggling a bit prior to the pandemic. It has had a really tough pandemic. We are seeing some signs of life, certainly from some of the listed property companies. Things are picking up, [we’re] not quite out of the woods. Are you still cautious on property as an asset class over the next couple of years?
MUSA MABESA: We remain invested in property because as a long-term investor we believe that diversified asset allocation will guarantee the sustainability of the fund. So we remain invested in it and we have a positive outlook on property investment in general.
SIMON BROWN: We hear lots of talk around infrastructure investing, particularly within Regulation 28 funds. Towards the end of last month we had the minister announce more of the renewable energy, more of that expected through next year. There’s talk around ports. There’s a lot happening in that space. Is that a space which you are investing into or looking at? Certainly infrastructure fits perfectly in that long-term investment philosophy.
MUSA MABESA: Indeed, Simon. Infrastructure does fit into our long-term strategy. The GEPF has invested in bankable projects, and I emphasise ‘bankable’ because we need to guarantee the investment in the terms that will be derived from it. So we are interested in such investments in line with our strategic asset allocation.
SIMON BROWN: You mentioned the ‘bankable’ and that is one of the benefits particularly if we look at, for example, renewable energy. You almost get certainty of payoff over a decade or two – usually a two-decade lifetime. You’re going to get those increases. They’re going to be inflation-adjusted and they do give some strong certainty to investment management.
MUSA MABESA: Correct, Simon. If it does, we should. We still remain invested in renewable energy projects. We know that part of the growth of the economy, as well, is in energy, and renewable energy is one of those focus areas for us. So we will continue investing in those and we’ll watch it closely going forward.
SIMON BROWN: Obviously some of your JSE investments will be global companies. Some of them will be offshore listed with, in some cases, a primary listing on the Johannesburg Stock Exchange. Beyond that do you do much investing beyond the borders of South Africa, perhaps into the rest of the African continent, or even wider?
MUSA MABESA: Yeah, we do have a strategy to invest in the rest of Africa, and we do have some investment options as well. We’ll continue to look at those markets again in line with our strategic asset allocation. But for now we remain heavily invested in South Africa. We are a South African pension fund and there is always home bias in our investments.
SIMON BROWN: You talk about the home bias. Of course this is government employees. The fund members are slightly down, but still there are over 1.2 million fund members. What’s quite important is that the flow out to pensioners who’ve retired, who are receiving the benefits of their retirement, is actually smaller than the growth in money. In other words, the fund is incredibly solvent and working as it’s designed to – to support pensioners from those who are currently working.
MUSA MABESA: Indeed. We’re not concerned about the longevity of the pension fund. Our caseloads remain positive, able to sustain the payment of benefits. Looking forward as well, our long-term funding level may be lower …… 6:2 ……2018, a terrible …… at 25%. We continue to monitor that, taking into account contingent reserves as well. But we are confident about the future growth of the fund and continue to play our part in growing the South African economy.
SIMON BROWN: That is an important point you mentioned earlier around the unlisted. Your core focus as a pension fund of course is the pensioners. Those are the people you’re most responsible to. Do you also take a view that there is a sort of a secondary responsibility to the broader economy, to the broader South Africa as a country?
MUSA MABESA: Indeed, Simon. This is important. Like I indicated, we’ve got a bias to investing in South Africa Incorporated. So we do look at it as a secondary focus area after taking care of our members, pensioners and beneficiaries. So we will remain invested in South Africa for Africa to work. The fund will continue to thrive as well.
SIMON BROWN: We’ll leave that there. That’s Musa Mabesa, the principal executive officer at the Government Employees Pension Fund. Results out, as I said, to the end of March. The key number annualised over the last decade is 8.9%. Musa, we really appreciate the time this evening.