The principal executive officer of the Government Employees Pension Fund (GEPF) Abel Sithole says the fund should invest more in unlisted companies as it is good for the economy and the best way to diversify its portfolio.
The suggestion comes amid recent controversy over unlisted investments by its biggest asset manager, the Public Investment Corporation (PIC) and allegations that unlisted investments have been influenced by favouritism and political considerations.
The GEPF, which has assets of R1.8-trillion, is by far both the biggest pension fund in the country and the biggest single investor in the economy. It is a defined benefit fund and is therefore guaranteed by the taxpayer. A judicial commission of inquiry is underway into the PIC, which is expected to make recommendations on governance and, in particular, on decisions on unlisted investments.
Sithole was speaking in Cape Town on Thursday at a briefing on the financial soundness and actuarial report of the fund.
“Most of the questions being asked at the commission are to do with the unlisted space, which is very small in the scheme of things. Yes, there are things that need to be fixed in this space, but despite the challenges we are experiencing as a fund, we should do more. If this is managed properly, which I hope it is, it is beneficial to the GEPF because we diversify our investments and it is good for the economy,” he said.
The GEPF invests about 5% of its portfolio in unlisted equities, which Sithole says he would like to double.
“My wish is that whatever the commission finds, we don’t do away with unlisted investments but that we do more and do it correctly. It is significant for the health of GEPF ... but it is also good for the economy.”
Sithole reported that although the funding level of the fund has dropped slightly since the previous valuation two years ago, it remains well-funded at a level of 108%. It made an average return on investments of 8.5% over 2018.
“This means that, as of now, for every rand of benefits due we are holding R1.08. So we are okay. Even though the funding level has decreased, it still well-funded.”
Based on assumptions of an equity risk premium of 3%, the actuarial report estimates that the government will need to increase its contribution by 3% from the present rate of 16% so as to be fully funded in the future. However, as the GEPF Law and Rule only requires the fund to be funded to a level of 90%, Sithole said there is no urgency for the employer to increase its contribution.
“I doubt that the government, in the short term, will make up the shortfall. I don’t think that the government has the money.”
The shortfall could also be addressed in other ways, such as giving more prudent pension fund increases, below the consumer price index.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.