The pension fund that looks after R2-trillion on behalf of government workers may shift hundreds of billions of rand offshore as it seeks to reduce its dependence on the local market.
"The biggest change we want to realise is to be more diversified," Government Employees Pension Fund (GEPF) principal officer Abel Sithole said in an interview this week. The primary reason would be to look for returns uncorrelated to the fortunes of the country, he said.
The fund hoped to put in place a new strategic asset allocation framework in coming months, he said.
While large-scale selling by an investor accounting for about 18% of the JSE could destabilise the market, for workers, and taxpayers who back their pensions, diversification could boost returns and offer a level of protection from a local market that has been hit by a shrinking economy. Offshore investment may also give the fund access to a wider pool of professional investors, reducing its cost of investing and boosting returns to members.
The JSE all share index has lost just less than 6% in 2018, while a fund tracking the MSCI global index would have returned just more than 2%.
Under current regulations, pension funds can invest as much as 30% of their portfolio directly offshore, with a further 10% for investment in the rest of Africa. This means as much as 40% of a pension fund can be invested outside of the country, and less than 10% of the GEPF assets are invested outside SA.
Most concentrated pension funds
This "makes the GEPF one of the most concentrated pension funds for its size in the world", Sithole said.
In the most extreme circumstances, an increase from 10% to 40% allocation could see as much as R600bn looking for new pastures. That equates to almost 13% of SA’s GDP.
The fund was consulting with the government, Sithole said.
"We are currently engaging with the minister of finance over what is best for the GEPF and best for the country, as any changes we make to our strategic asset allocation would have consequences for the JSE and the economy as a whole."
While Sithole would not say what targets the fund had proposed, he said if the government gave the go-ahead, it would allocate more assets to established western markets through passive strategies. Passive investments involve investors following an index rather than paying an active fund manager to pick individual stocks. Globally, money has shifted to passive strategies as active managers fail to beat their benchmarks despite their higher fees.
"The fund completed its asset and liability modelling last year [2017], which helped inform our view on what is appropriate in terms of how much of the fund’s assets should be shifted into strategies outside of its listed investments on the JSE," Sithole said.
A shift in its strategy would see it move more of its money into unlisted companies. "We would like to access returns from the economy directly, outside of the listed space."
Dennis George, general secretary of Fedusa, one of the largest unions representing government employees, said while the union had not yet been consulted on the new strategy, he understood the argument for diversifying away from the JSE where the GEPF was a dominant player.
"If they want to make larger allocations to investments in the unlisted space, we are interested in the social outcomes. Like, will it create jobs and support inclusive economic growth?"
George has led calls for better corporate governance at the Public Investment Corporation (PIC), which manages the funds on behalf of the GEPF.
Specifically, he would like appointments to the board of the state-owned asset manager depoliticised. "We have seen the damage done by ‘comrade deployment’, which from examples in the past has meant the Guptas appointing someone to a board.
"We would also like to see other representatives of employees appointed in the capacity of nonexecutive directors." George said this should be extended to representatives of the boards of listed and unlisted investments made by the PIC.
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