SA’s sluggish economy and the Covid-19 outbreak and associated lockdowns had a devastating effect on the pension fund that looks after the savings of government workers, with the value of its assets falling more than R200bn.
The Government Employees Pension Fund (GEPF), which is responsible for ensuring the financial wellbeing of all national and provincial government employees in retirement, said its portfolio declined nearly 12% for the year ending March 2020. Despite the lockdown only being announced towards the end of that month, it cited market turmoil due to Covid-19 among the main drivers of the performance, a sign of how drastic the turn in sentiment was.
The pension fund of the country’s more than 1.2-million public servants saw its value fall by R243bn to R1.64-trillion “as a result of the impact of Covid-19, the downgrade in credit ratings and a persisting low growth environment”, the fund said in a statement on Monday.
In March alone, the FTSE/JSE all share index fell 14%, according to Bloomberg, as markets around the world confronted the consequences of the spread of the coronavirus and the economic impact of lockdowns. SA’s lockdown was said to be among the most stringent.
This had severe consequences for the GEPF, which has more than half its portfolio invested in local equities.
Even before Covid-19, a deterioration in the country’s economy led to a loss of its last remaining investment grade credit rating at the end of March, a move that was expected by international bondholders who subsequently reduced their holdings of SA assets. SA bond yields, which move inversely to prices, were already among the highest even for emerging markets and spiked further due to the Covid-19 shock.
The downgrade meant that the GEPF, which at the end of the last financial year held more than R500bn in SA government and parastatal bonds, took writedowns on the value of its large fixed-income portfolio. The GEPF said its portfolio has been recovering since, as economic activity gradually rose and markets calmed. It now stands at an unaudited value of R1.9-trillion.
But the results will certainly advance its argument that the fund should diversify more of its portfolio internationally, as it noted “the decline in international asset classes was offset by a significant decline in the value of the rand against the dollar”.
While the JSE all share has clawed back its losses to be up 0.3% for 2020, in dollar terms it is down 8.5% compared to a gain of just more than 7% for the MSCI World index, which covers developed markets.
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