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PIC fails to provide an exemplary service to government pensioners

Then pays a dividend of R80m to government – off the back of income on assets surely owned primarily by the state employee pension pot?
It may be too big to fail, but the PIC can lose a lot of value and cause harm to those it should be protecting. Image: Shutterstock

The Public Investment Corporation (PIC) is the largest asset manager in Africa. In the year to March, it managed some R3.2 trillion of assets – 86.75% of which it manages on behalf of the Government Employees Pension Fund (GEPF). But is the PIC being transparent in its asset management?

Having been in the spotlight at the commission of inquiry established in October 2018 to delve into allegations of impropriety regarding its investments, the PIC now appears to have clammed up completely. The commission, presided over by Judge Lex Mpati, will submit its final report to President Cyril Ramaphosa on October 31.

Investments in financial assets and financial instruments

The PIC’s 2019 integrated annual report provides no detailed disclosure of listed and unlisted investments, bonds, loans, and unpaid interest. It doesn’t even indicate the rand value of the allocation between listed and unlisted investments, bonds, and loans.

This is all there is:

R million




Financial assets

1 786

1 669

1 458

Financial instruments





2 308

2 244

1 852

Apart from a R121 million unrealised loss on investments mentioned by the Auditor-General (AG) in his audit report, it doesn’t appear that any further impairments were made.

In other words, the R4.3 billion investment in Ayo Technology Solutions must still be valued at that amount. When will the PIC take a haircut on this investment?

According to a schedule of investments dated September 30, 2018, the PIC held investments in a number of other entities that have since lost value, such as VBS Mutual Bank, Lancaster 101 (which held shares in Steinhoff), Brait, Choppies Enterprises and EOH. Where is the impairment?

Investments in associates (equity method)

R million




Investments in associates




These investments include Harith Fund Managers of R2 million (negative) (2018: R0.2 million negative), Harith General Partners of R123 million (2018: R97 million), and South African SME Fund of R38 million (2018: R9 million).

The AG issued an unqualified audit report with findings

The findings are briefly set out below:

  • An unrealised material loss of R121 million was recognised from the investments in financial assets. [Note: This loss relates to the investment in Bophelo Insurance Group (BOP). BOP held deposits with VBS Mutual Bank, which has been placed under curatorship by the South African Reserve Bank. BOP has since been placed under liquidation by the Financial Sector Conduct Authority (FSCA)].
  • The annual financial statements were not prepared in accordance with the prescribed financial reporting framework, and material misstatements on disclosures of capital commitments, financial instruments and cash and cash equivalents that were identified by the external auditor had to be corrected.
  • The procurement process was not always fair, equitable, transparent and competitive. 
  • 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 not always incorporated into legal contract, and policies and procedures not always complied with.
  • Not all information was received prior to the report, and if the AG detects a material misstatement, the audit report will have to be withdrawn.
  • Instability and key vacancies at the PIC contributed to an overall decline in internal control deficiencies, effective financial systems of internal control were not implemented, and risk management processes were not considered adequate or effective.
  • The AG drew attention to the following reports:
    • A limited assurance engagement was conducted over the period April 1, 2018 to March 31, 2019, and the report was issued on August 30, 2019.
    • The commission of inquiry into allegations of impropriety regarding the PIC has to date not concluded its work.

General observations of the audited financial statements (GEPF, take note)

  • The detailed investments, listed and unlisted, as well as loans and unpaid interest should be made public and be disclosed.
  • The government may be the ultimate guarantor of the GEPF, but the taxpayers are the underwriters.
  • The unpaid interest on loans should be taken out of the investments, and shown separately under creditors. Note – the unpaid interest is added to the initial investment, which leads one to the understanding that the investment is growing.
  • The GEPF actuarial valuation as at March 31, 2018, reflects declining short and long-term funding levels, indicating a downward trend (see: GEPF is a cash cow no longer).
  • The PIC has backdated its adoption of IFRS 9 (financial instruments) and recognises the “reclassification and the adjustment arising from the new impairment rules” in the opening balance on April 1, 2018. But the impact is negligible. I don’t buy this.

PIC media release dated October 15

The media release, in my view, does not provide any meaningful information. Some excerpts are set out below:

  • Investment performance: “The PIC has consistently outperformed the clients’ listed investment benchmarks over the past decade. The listed Equity Portfolio …” My comment: Please release details of all investments, and dividends and interest received. The proof is in the pudding.
  • Unlisted investment portfolio performance “is still dragging behind the targeted exit returns as a result of broader macroeconomic headwinds and driven more specifically by a few large transactions that were impaired …” My comment: Please provide details.
  • “The PIC managed to achieve an unqualified audit opinion from the [AG], with findings on compliance to applicable laws and regulations.” My comment: Actually, no. The audit findings were damning – see above.


The PIC paid a dividend of R80 million (2018: R60 million) to its shareholder, the government. That’s rich. The government has a R1 000 equity investment in the PIC, and gets paid an R80 million dividend off the back of income on assets that surely belong mainly to the GEPF?

The PIC should be removed from government interference, corruption and ineptitude. There is no reason for the government to hang onto it, other than to use it as a slush fund.

However, there is also no requirement for the GEPF to have its assets managed by the PIC.



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Sounds like hands in the cookie jar.
Once again.

Wow! Blatant! Just that sentence, “The government has a R1 000 equity investment in the PIC, and gets paid an R80 million dividend…” should be a headline, screaming from every front page.

Here’s my thousand Rand. How do I go about investing it in the PIC?

PIC governance needs attention for sure and is an issue for all taxpayers – but it feels like we spend an awful lot of time worrying about GEPF pensioners. I think GEPF pensioners are pretty well off with a fantastic set of Defined Benefits the likes of which you would never see in the private sector today and underwritten by the state – so completely investment risk free.
Those of us with private Defined Contribution pensions and RAs have far more to worry about with negative real returns in many funds over 5 years and prescribed assets seemingly a future risk – with all risks being carried by ourselves. Maybe some are lucky enough to have a spouse or family member covered by GEPF. By my own rough calculations using the GEPF calculator on their site and current annuity rates I would have a notional capital value in GEPF of 5x my current capital value in my private scheme based on years of service and current salary.

I think you may be understating the case. If markets tank you will feel the impact directly in your DC fund. You will also have to cough up sufficient extra taxes to cover the resultant shortfall in the state DB funds.

It also means public officials making decisions with adverse consequences for the rest of us (including public sector pay increases) do so in the knowledge that there are no adverse consequences for themselves.

In the modern jargon, it is high time the interests of public employees were aligned with those of the country.

Let’s not lose sight of the fact that the PIC is primarily an asset management company. There’s a big difference between its own portfolio and those of its clients.

Its assets do not mainly belong to GEPF. The IFRS9 adjustment presumably relates to its own portfolio which consists predominantly of bonds and cash, plus 538m of listed investments (no analysis provided). Why an asset manager needs a balance sheet this size I’m not sure.

It makes 400m profit and pays 160m tax on that. So with regard to the dividend of 80m my question would be not what the nominal share capital is (it’s a historical fossil I expect) but why an asset management company needs such high dividend cover.

If I’ve got my billions and trillions right, its revenue is about 0.6% of assets under management, which, at least in % terms, is not scandalous by any means. Though the 200m provision (annual) for staff incentives may raise an eyebrow !

Good article. Thanks Barbara!

End of comments.



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