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The GEPF faces five red flags

The difficult part will be clawing back the loss – through the PIC.
The GEPF queried certain investments made by the PIC, such as that in Ayo Technologies, but had no power to stop them. Image: Moneyweb

The Government Employees Pension Fund (GEPF) recently released its annual report for the financial year ended March 31, 2020, showing a marked decrease in investment values.

Approximately 87% of its investments are managed by the Public Investment Corporation (PIC), which has been under scrutiny. The Judicial Commission of Inquiry into allegations of impropriety at the PIC – chaired by retired judge Lex Mpati – released its report in April, after the GEPF’s financial year-end.

It is to be noted that the commission did not have the resources to investigate every allegation of malfeasance.


The GEPF made losses of R214.4 billion for the year, and the market value of investments dropped 11.47% to R1.61 trillion. The investments were knocked by the downturn in the economy, the devastating Covid-19 pandemic, as well as the cost of malfeasance perpetrated by a few officials at the PIC.

The GEPF, through the PIC, now has to try to claw back what has been lost or impaired. This article considers five red warning flags.

Red flag 1: Actuarial valuation

A statutory actuarial valuation is carried out at least once every three years. The last one was done by Alexander Forbes Financial Services as at March 31, 2018. The next one will be carried out on the fund for the financial year ended March 31, 2021, but will only be completed in December 2021.

The minimum funding level is defined as the funding level determined excluding any contingency reserves.

The long-term funding level is determined using solvency reserves and other contingency reserves which the trustees deem realistic in the long term.

Funding levels 2018 2016 Required level per the funding policy
Minimum funding level 108.3% 115.8% 90%
Long term funding level 75.5% 79.3% 100%

Whereas the minimum funding level is above the 90% stipulated in the funding policy, the long term funding level in 2018 falls short of the required 100%. Since 2018, investments have plummeted. The 2021 long term funding level rate will be negatively impacted if the investments do not fully recover by then.

In a discussion after the press briefing, GEPF principal executive officer Musa Mabesa assured Moneyweb that the long-term funding rate is being continuously monitored.

Red flag 2: The investments carry further risk of deterioration

The reasons for the risk of deterioration are provided in the notes below.

Investments (Rm) 2020 2019 2018
Money market instruments, Note 1 29 171 42 323 30 228
Direct loans, Note 2 42 344 41 887 44 245
Bills and bonds, Note 3 568 766 575 542 576 691
Investment properties 14 989 14 651 14 296
Equities – primary listing on JSE, Note 4 557 489 763 107 781 485
Equities – secondary listing on JSE, Note 4 205 528 199 891 188 601
Equities – unlisted equities, Note 5 70 412 68 063 62 993
Preference shares 2 951 5 044 4 379
Collective investment schemes 118 460 108 331 98 899
Total investments 1 610 110 1 818 839 1 801 817

Note 1: The money market instruments include promissory notes with the Land and Agricultural Development Bank (Land Bank) of R4.4 billion. The Land Bank is experiencing liquidity problems and defaulted on its obligations post balance sheet. At the press briefing, Mabusa said the Land Bank made its outstanding interest payments in September 2020.

Note 2: The direct loans were impaired by R11.9 billion. Further impairments are a possibility.

Note 3: Bills and bonds include bonds with: Eskom (R78.2 billion), Sanral (R20.9 billion), Transnet (R20.3 billion) and Trans Caledon Tunnel Authority (R6.9 billion). In this worsening economic climate, bonds and money market instruments held with state-owned entities may be at risk of defaulting.

Note 4: The loss on fair value is R297.2 billion.

Note 5: The Mpati commission reported that “41% of the R123 billion of unlisted investments are on watch, underperforming or not servicing loans [non-performing loans]”.

Post balance sheet event: The GEPF had to take up the direct exposure of R250 million to GroCapital in July 2020 through a put option agreement with Nedbank, and was also required to lay out R126 million to purchase Drive-In Trading from Bank of America and Merrill Lynch through a CRO (contingent repurchase obligation) agreement.

At the press briefing, Mabesa was asked about the risk of further guarantees that the GEPF had been committed to. He said a moratorium has been placed on all such structured investments.

Red flag 3: Impairments on direct loans

Many of these investments should not have been made at all. For example, Erin Energy Corporation was technically insolvent and did not own any oil leases. The PIC (on behalf of the GEPF) lost the whole investment.

Some investments do however recover. Mabesa gave as an example Daybreak Farms, previously impaired, which recovered after the PIC had intervened and improved governance processes.

R’000 2020 2019 2018
Afrisam Group 527 593 2 354 506 252 815
Lancaster Group 3 361 426 959 277 4 275 782
Erin Energy Corporation 646 054 269 782
Allied Mobile Communications 415 573 867 764
Smile Telecoms Holdings 322 857 542 057
Firefly Investments 326 401 289 480 633
Independent News and Media SA 112 531 338 510 1 058 320
Belelani Capital 2 334 171
Kilimanjaro Sakhumnotho Consortium 1 038 464
Kuseni Group 809 412 307 067
Other 2 627 195 2 271 103 1 533 912
11 950 511 8 766 971 7 390 611

There is a view that the direct loans represent a small percentage of the overall portfolio. The Mpati commission pointed out that “when evaluating materiality and prudence, it is important to note that the use of percentages obfuscates the numerical size of the funds in question.”

Red flag 4: Overall net investment earnings

R million 2020 2019 2018
Dividends 34 051 34 825 30 557
Interest 52 275 47 916 44 620
Other income 596 393 429
Foreign exchange gain 5 942 2 934
Reversal of impairment 259 454 625
Property income 1 822 1 742 1 742
Income from investments 94 945 88 264 77 973
Net profit on sale of investments 38 031 11 376 18 716
Adjustment to fair value -297 168 -40 455 69 034
Impairment of investments -11 951 -8 767 -7 391
Total investment loss/income -176 143 50 418 158 332
Less: expenses incurred in managing investments -3 518 -3 641 -4 923
-179 661 46 777 153 409

By September 2020 many investments had recovered.

The real test however, will be the audited annual report as at March 31, 2021.

Red flag 5: The current Investment Management Agreement (IMA)

Certain investments made by the PIC, such as the investment in Ayo Technologies, were queried by GEPF principal executive officer Abel Sithole (now CEO of the PIC). However, he had no power to stop the investment.

According to the Mpati Report (page 621): “… the PIC did not involve or inform the GEPF when it considered and made the investment in Ayo.

“The PIC contended that they considered the Ayo investment fell under the listed investment delegation of authority [per the IMA], a view that Mr Sithole strongly disagreed with and said that while he could not pronounce on the legality of the action, it was certainly a breach of faith and trust.”


The IMA is now under review, and the GEPF is expected to have more power to intervene in any proposed investment. Consequence management will also be strengthened. Until then, the current IMA remains as a red flag.

Briefing to parliament

In the evening of December 2, National Treasury and the PIC briefed the Parliamentary Standing Committee on Finance on the Mpati Report.

Finance Minister Tito Mboweni made it clear that they are going to get to the bottom of what happened, they will deal with all the issues, and they will deal with the malfeasance.

The National Prosecuting Authority and the Hawks have already been engaged. The PIC has already implemented many of the recommendations of the Mpati Report. The difficult part will be clawing back the loss.

Listen to Nompu Siziba’s interview with Abel Sithole, former GEPF principal executive officer and now CEO of the PIC (or read the transcript here):

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The destructive force of ANC politics will cause the GEPF to attrode more value.

Politicized asset allocation decisions, under the guise of the false hope of transformation will destroy value.

Socialism, collectivism and communalism enable the most unscrupulous individuals in the community to rise to the top, where the system incentivises them to plunder that community at the maximum rate. Take the Tripartite Alliance for instance.

The Tripartite Alliance is this gathering of the most unscrupulous and underhanded individuals in the country. They pretend to fight for unity while they are undermining the unity and stealing from each other. They depend on their unholy alliance to prolong the looting spree. They support each other in the looting process, while they are stealing from each other.

The GEPF spends money on ANC projects while that money belongs to Cosatu members and government employees. The cadres use the pension savings of cadres to provide financial support to cadres to receive “consultation fees” from cadres. Cosatu members take the ANC to court to force them to use the pension savings of Cosatu members to pay higher wages to Cosatu members. The Alliance uses the pension savings of government employees to fund the salaries of government employees at bankrupt SOEs. The ANC uses the money of Cosatu members to bribe Cosatu members to vote for them. Nobody in this communist cesspit realises what is going on, because they are too busy scheming against each other, under the pretence of unity.

Under the table, they are stealing from each other, while above the table, they are unified. This is communism in action – the destruction of property and the misallocation of capital.

The Tripartite Alliance is doing exactly what the textbook predicted they would do. They are plundering the assets of the nation, squandering the savings of government employees, misallocating capital, destroying property rights and stealing from each other. They are unified in this process.

For those of us who don’t speak actuarese it would be helpful if you explained some of the jargon instead of merely quoting from the report. So what exactly is the long-term funding level ? How does 100% requirement make sense if there is only a 90% requirement for the minimum funding level ? Why did contingency reserves suddenly jump in 2018 (impairments through the back door ?)

The GEPF should be converted to defined-contribution, which will focus the attention of all ‘stakeholders’ on governance, admin costs and investment performance without the security blanket of taxpayer guarantees.

Incidentally, if the minimum funding level drops below 90% at March 2021…

Theft from the people, by the people and facilitated by the Government !!

The extremely poor vote for the ruling party which promises a better life for all. Sadly they are disappointed and become even poorer. Stupidly their naive support remains unwavering. The very definition of insanity.

Most government employees are realizing that the state pension fund will be out of money when they reach retirement. That is why there is this feeding frenzy at the the troughs now to fill their coffers.

I give the PIC five to ten years in which to lose half its money.

Twenty years and it will be worth $0

Its Assets may be worth nothing but as its a Defined benefit Plan , why should they care ? Just fleece the few remaining taxpayers to fund the pensions(which guarantee votes ) .

I doubt it, by that time I will settled somewhere else in the world or traveling.

I suppose the TV license people will be looking for me and I can tell where to go. Same for SARS.

The rot started when people tried to do more than run a “boring” pension fund.

All this talk about using retirement money for developing the economy, ESG showboating, blah blah blah.

The only objective of a “boring” pension fund is to pay pensions on time!

End of comments.





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