SA’s greylisting by the Financial Action Task Force (FATF) in February last year has made the offshore transactions of the Public Investment Corporation (PIC) more difficult, said the asset manager’s chief investment officer, Kabelo Rikhotso.
The greylisting was due to SA’s failure to meet global standards to combat terrorism financing and money laundering.
Rikhotso said in the corporation’s 2023-24 annual report tabled in parliament that the PIC, Africa’s largest asset manager, was now subject to greater scrutiny and enhanced monitoring by its international counterparts.
“Local regulators see greater risk in the PIC conducting transactions in low-tax jurisdictions and in foreign entities, enhancing client due diligence of the PIC and its beneficial owners and co-investments.
“These developments delayed the conclusion of transactions outside the country and hindered doing business on the rest of the African continent. Regulators are also cautious about approving capital flows to other jurisdictions requiring time to undertake their own due diligence on transactions,” Rikhotso said.
According to the annual report, the PIC’s assets under management grew 3.6% to R2.69-trillion in the year to end-March.
Revenue increased 3% to R1.26bn and enabled the PIC to declare a R141m dividend to government, its shareholder.
The Government Employees Pension Fund contributed 88% to assets under management. Its share was valued at R2.4-trillion at the end of the financial year despite withdrawals of R117bn for benefit payments.
Listed equities
By year-end the Unemployment Insurance Fund had 5.5% of total assets under management totalling R150bn while the Compensation Fund’s share of 2.2% amounted to R59bn. Smaller clients make up the rest of the PIC portfolio.
The major asset class in the portfolio was listed equities, which delivered a return of 1.4% to R900bn.
Rikhotso noted that the PIC was underweight in its holdings in the financial sector over the past few years due to the limitations on the size of equity interests in SA financial institutions imposed by its clients. A long-term solution to this problem was being worked out.
The PIC’s exposure to Eskom bonds was about R83bn at year-end.
Rikhotso noted that the PIC had pursued its policy of promoting BEE. A minimum of 98% of total brokerage fees was paid to firms with a broad-based BEE rating of levels one to three. Firms that were 51% black owned or had 30% management control by historically disadvantaged individuals received a minimum allocation of 70% of brokerage fees.
By the end of 2023-24, R167bn (66%) of the R253bn of assets allocated to domestic firms was managed by black-owned entities with more than 51% black ownership and 30% black management control.
“This emphasises the PIC’s important role in developing and sustaining black asset managers in SA,” Rikhotso said.
Proved challenging
The PIC paid out about R624m in fees during the year, of which R360m was paid to BBBEE firms for portfolio management services on domestic assets.
“Numerous factors continue to affect black-owned firms and while certain regulatory changes may have positive effects, the changes to Regulation 28 (which allows pension funds to invest up to 45% of their assets offshore) have proved challenging. The higher offshore allowance is seeing assets leave SA shores for global firms,” the annual report reads.
By end-March the PIC portfolio was divided as follows:
- 33.4% in listed equities managed in-house.
- 9.57% in listed equities externally managed.
- 31.2% in bonds.
- 6.85% in cash and money markets.
- 2.18% in listed properties.
- 0.54% in unlisted private equity.
- 1.73% in unlisted impact investments.
- 2% in unlisted properties.
- 0.54% in Africa unlisted investment.
- 1.57% in Africa listed equity.
- 8.83% in offshore listed equity.
- 1.58% in offshore listed bonds.
By end-March the capital committed to unlisted investments exceeded R100bn.
PIC CEO Abel Sithole noted that by the close of the financial year the PIC had implemented 242 of the 243 recommendations of the Mpati commission of inquiry into allegations of impropriety in the organisation that were within its control and was preparing a close-out report for submission to finance minister Enoch Godongwana.
The PIC received an unqualified report by the auditor-general on its financial statements.
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