The fund that pays benefits to workers who are injured or fall ill at work is tightening up its relationship with state-owned asset manager the Public Investment Corporation (PIC) so it can have advance knowledge of impairments, among other issues.
The Compensation Fund had investments of R85bn in the PIC as at end-December 2021, up from R80.5bn at end-March 2021, according to its director of financial reporting, Linda Kotta. It is funded by levies paid by employers.
The PIC is Africa’s largest asset manager, with assets under management of about R2.3-trillion as at end-March 2021. It also invests on behalf of the Government Employees Pension Fund, the Unemployment Insurance Fund and other social security funds.
Several of the changes in the relationship between the Compensation Fund and the PIC are being made to meet the requirements of the auditor-general.
Compensation Fund commissioner Vuyo Mafata said during a presentation to parliament’s employment and labour committee on Tuesday that the fund wanted to be proactive in obtaining information on the status of its unlisted investments and the impairments in the investee companies in which the PIC invests before receiving the annual valuation reports.
Mafata said the Compensation Fund did not have any serious concern with the level of impairments in PIC investments.
The auditor-general has raised the issue that some of the investments were impaired without any proactive work being undertaken to address the issues. Advance knowledge would allow for timely intervention in investee companies in financial distress, Mafata said.
Replying to a question on the issue by DA spokesperson on employment and labour Michael Cardo, Mafata said: “Whenever we invest, we invest workers’ money, so if an investment is made and that investment results in that investment losing value, that is a loss on the part of the assets that we have in the fund.
“If there is any possibility that an asset may be impaired, we need to know beforehand so if there is any monitoring and intervention that we would want the PIC to make we can proactively say so, as opposed to us only picking this up in the valuation reports at the end of the financial year when the impairment has already taken place and there is very little that you can try to intervene on,” he said.
Mafata told MPs the Compensation Fund wants the PIC to provide the agreements it has entered into with unlisted investee companies and to receive monthly or quarterly reporting on the compliance with these covenants.
It also has changed its mandate with the PIC so that investments are not made in socially responsible investments until reporting issues have been sorted out.
The fund also wants the management accounts of investee companies to be evaluated on a quarterly basis and before the submission of the audited annual financial statements to the auditor-general. It wants to appoint service providers through the PIC to do the audits and high-level reviews on behalf of the fund as, Mafata said, the auditor-general wants the assurance that the fund has reviewed and made sure that the information being reported in its consolidated financial statements is complete, accurate and verifiable.
By the end of December, service providers had been appointed but the contracts had not yet been finalised.
The service providers would also assist in performing valuations of the underlying companies in terms of the Generally Recognised Accounting Practice (Grap) standards, which the Compensation Fund and the public sector generally use instead of the International Financial Reporting Standards (IFRS) used by the private sector.
Mafata said the fund also wanted the structure of the PIC’s investment and actuarial unit to be assessed to determine whether it is adequately capacitated. This would be addressed through the appointment of the service providers. Furthermore, it wants to have monthly management investment meetings between the Compensation Fund’s management and the PIC.
In addition, the Compensation Fund wants the service-level agreement with the PIC to include penalties for non-performance and non-compliance with the terms of the Intergovernmental Relations Framework Act. Mafata said this related to the timely receipt of information from the PIC.
PIC spokesperson Sekgoela Sekgoela said in reply to questions that the relationship between the PIC and the Compensation Fund was governed by an investment mandate, which included continuous engagement with the client. “Any client concerns are dealt with through established communication channels.”
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.