The clients of the Public Investment Corporation (PIC), the Unemployment Insurance Fund (UIF) and the Compensation Fund have said no to ramping up investments in unlisted entities.
The UIF cited as its reason the poor performance in the sector, including the liquidation of several companies. The unlisted investments of the two funds total a combined R23bn.
The funds’ approach towards their unlisted investment portfolio contrasts with that of the PIC, which said in a briefing to the National Council of Province’s select committee on finance in June that it planned to ramp up its unlisted asset share from the current 5% to a “visionary” 25% over the next five years to drive transformation and job creation.
It said it had negotiated a new investment mandate with its clients that provided for the new framework for unlisted investments.
The PIC, with total assets under management of about R2.3-trillion, acts as the asset manager for the UIF and Compensation Fund, which respectively provide support to unemployed workers and pay compensation to those injured or made ill at work. The PIC’s main client is the Government Employees Pension Fund, with the UIF having R116bn under management at end-March 2021 and the Compensation Fund R34bn.
The two funds disclosed their approach to their unlisted investments when questioned by DA MP Alf Lees during a meeting with parliament’s standing committee on public accounts (Scopa) on Tuesday.
The UIF has unlisted investments of R20.6bn in just more than 25 investee companies while the Compensation Fund’s unlisted investments amount to R2bn. The commissioners of both funds have undertaken to provide Scopa with a report on their unlisted investments.
UIF CFO Fezeka Puzi told MPs they have “put a hold on further investments in unlisted investments”.
Manage actively
“Due to the poor performance of some of these instruments and some of these instruments being impaired to an extent that the fund sometimes gets to lose money [some of these instruments are under liquidation], the fund took a decision to say that we are not going to invest further in these unlisted investments. We are going to put a hold on those and only service the ones that are now performing,” Puzi said.
“However, we are also looking at a strategy of exiting these instruments. We have instructed the PIC to manage these instruments actively. They have established a unit to look at turning around these companies that are in distress. On a monthly basis, they report to us. What has been requested is for them to look at these companies in distress and come up with recommendations. If a company cannot be assisted further they need to indicate to the fund so that we can take a decision to exit that investment. There are no further investments in unlisted investments given the challenges we now face.”
Compensation Fund commissioner Vuyo Mafata said the fund has revised its mandate with the PIC regarding unlisted investments and is not looking at new ones. He said it is difficult to get out of unlisted investments without incurring further losses as it is sometimes difficult to find buyers. The fund is working with the PIC to improve accountability by unlisted companies and is reviewing its agreement with the asset manager.
The Compensation Fund’s acting CFO, Linda Kotta, said of the R2.1bn the fund had invested in unlisted investments as at end-June, R421m was in unlisted equities compared with the original cost of about R518m with several of companies under liquidation or underperforming. A total of R1.2bn was invested in equity funds, about equivalent to the original cost, and R532m in unlisted loans compared with an original investment of about R1.2bn, which indicated that a number of investments were not doing well.
The PIC said in response to the story that it had concluded a new unlisted investment mandate with the Government Employees Pension Fund (GEPF) that involved the allocation of R25bn. The total current unlisted investment portfolio is 5% of its total portfolio, and it believes that increasing the unlisted portfolio to 25% over five years “can assist with maximising returns and growth of the economy — from which all client portfolios can benefit.
“It must be understood that the PIC conducts unlisted investments not of its own accord, but it is required to do so by the terms of the mandates of its clients, including the UIF and the CC. There is no final decision to move the unlisted portfolio from 5% to 25%. Increasing investments in the unlisted portfolio to 25% of its total portfolio will require consultation with and instructions from the PIC’s the clients.”
Mafata briefed the committee on the process under way to improve the audit outcomes of the Compensation Fund, which has been receiving disclaimers from the auditor-general for many years. Twenty skilled personnel from the private sector have been seconded to assist with the clean audit action plan, which aims to address the root causes of the adverse audit findings by introducing controls. Five private sector companies have also been brought in to undertake a forensic investigation into allegations of fraud and corruption, maladministration, conflict of interest and an unethical culture spanning the years from 2016/2017 to 2020/2021.
UIF commissioner Teboho Maruping said that up to August 23 the UIF had an exposure of R230m in Covid-19 temporary employer/employee relief scheme cases related to fraudulent claims. It paid out R61bn in relief under the scheme, which was introduced to assist employers and workers during the pandemic lockdowns, of which R18bn had been verified under the Follow The Money programme.
A total of R133m had been preserved by the Asset Forfeiture Unit and R123m had already been received or recovered by the UIF.
So far there have been 10 convictions and two acquittals in seven concluded cases involving officials who had been sanctioned with written warnings and in one case a month’s suspension of pay. There were two outstanding cases involving a top manager and a deputy director who had been found guilty and sanction is awaited.
Updated: September 6 2022
This story has been updated with new information.
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