Inquiry alleges ‘substantial impropriety’ at Public Investment Corp

‘The commission has also recommended far-reaching changes in the PIC’s operating model.’
Image: Moneyweb

A judicial inquiry in South Africa recommended sweeping changes to laws governing Africa’s biggest fund manager after it found senior management, including former Chief Executive Officer Dan Matjila, flouted internal procedures.

The investigation, led by retired Judge Lex Mpati, concluded there had been “substantial impropriety” at the state-owned Public Investment Corp., which manages R2.13 trillion ($130 billion) of state-employee pension funds.

It found that the board had acted as a “rubber stamp” for Matjila, who failed to disclose material information when making investment decisions.

The PIC oversees the pensions of more than 1 million South African state employees and the assets under its control equate to about 10% of the total market value of all the companies that trade on Johannesburg’s stock exchange.

‘Undue Influence’

“Matjila’s requests to provide financial assistance or make contributions to individuals, organisations and political parties reflects his abuse of office and the ability to exert undue influence over investee companies,” the commission said in its 995-page report. The commission also found that other senior managers used various means to “give effect to victimisation of staff.”

President Cyril Ramaphosa ordered the investigation in October 2018, one of a handful he’s instituted to probe alleged graft since taking office after Jacob Zuma’s scandal-marred nine-year rule. Ramaphosa said he would hand the Mpati Commission’s report to the National Prosecuting Authority for further investigation.

“The commission has also recommended far-reaching changes in the PIC’s operating model,” the presidency said in a statement. “The operating model, which developed organically over the years, is too centralized and no longer fit for a R2 trillion asset manager and not in keeping with international best practice.”

Matjila didn’t immediately respond to requests for comment sent by text message.

Salvaging Money

In his lengthy testimony before the commission in July, Matjila said he was pressured to make deals that didn’t fit with PIC’s strategies and he was removed from his job so that politically connected people could influence the fund’s investment decisions. Matjila also suggested to the commission that the law governing the PIC act should be changed to ensure independence.

While the PIC was long heralded for delivering market-beating returns, the presidency’s statement also said it’s “worrying that the inquiry shows that the PIC has not shown the urgency to salvage whatever money it can recover.”

The government guarantees state workers’ pensions, meaning that by extension taxpayers would be on the hook should the PIC make insufficient returns to cover required payouts.

Poor practices “have led to situations in which the PIC lost a lot of funds, which must be urgently recovered,” the presidency said. “Civil actions will be instituted in this regard.”

Additional Key Points:

  • The commission found “that a number of individuals unduly benefited from the improprieties identified.”
  • In some instances directors and employees abused their positions of trust.
  • Lifestyle audits conducted by PwC, at the request of the commission, found a former non-executive director, Sibusiswe Zulu, engaged in questionable behavior and there was a significant flow of funds to her account. The commission said this should be the subject of further investigation.
  • The presidency said recommendations were made which require urgent attention and action by different state institutions, including the criminal justice system, National Treasury and the reconstituted PIC board.
  • Treasury will develop a detailed plan of action for itself and the PIC board, and will report regularly to the presidency on implementation steps.
  • The commission recommended that the PIC’s delegations of authority be reviewed by no later than June.
  • It noted that many people testified at the inquiry at great personal cost with the real risk of victimization and loss of employment, while others faced threats to the lives of their families, as well as their own.

© 2020 Bloomberg

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