LIVE: Govt pension fund is not limited to the PIC in choosing an asset manager – Sithole

Marcus asks about meetings between the GEPF and PIC which have not happened frequently as they should.

To this Sithole says he does not want to point fingers.

In instances when meetings did not take place, it is not because the GEPF did not try reschedule meetings.

The GEPF is “by and large available” for meetings that are scheduled. if meetings did not take place it is because the PIC did not avail themselves for those meetings.

Lediga asks if the worst the GEPF can do to the PIC is extract its assets.

Sithole says yes, but it is not the only.

In the past there were concerns with how the PIC dealt with investments in an uncertain environment.

What the GEPF did was then to limit the investments to R2bn. 

If the PIC wants to invest more than R2bn, it must consult the GEPF, who will interrogate the rationale. The GEPF can limit the discretion in what the PIC can do, or withdraw the investment mandate. 

The GEPF does not have to be limited to the PIC in choosing an asset manager.

Some people believe there is an unbroken umbilical cord between the two organisations- in law there is no such.

The GEPF can look for other avenues to manage its assets to the extent it believes it is correct to do so.

I am not saying it will be an easy process- it will be a difficult process. 

The GEPF is not solely concerned if the PIC survives or not- it is concerned with whether it executes the mandate undertaken in accepting the investment management agreement.

The PIC is not the only asset manager around, there are other asset managers.

There are things the GEPF itself can do to manage its own assets.

Relationship between GEPF and PIC

The PIC is a separate corporation to the GEPF, with its own board and management, Sithole says.

The PIC is an asset manager – owned by the state. 

The relationship between the GEPF and the PIC is governed by an investment agreement.

Since 2007 there have been two addenda to the investment agreement.

Assistant commissioner Gill Marcus asks if a board of trustee on the GEPF should not be allowed on the PIC board.

Sithole acknowledges there is a conflict of interest that exists if the mandater (board of trustee rep) is also the implementer (PIC board rep).

What is done to manage the conflict of interest – is to evaluate which aspect of the management of the GEPF are those directly involved in the management of the PIC and how does one create distance in those processes.

The board of trustees at GEPF are involved with more than just investment. So when it comes to investment- the board of trustees should recuse themselves from investment discussions. Sithole reiterates it is about managing conflict.

Eskom’s quickest fix is giving it cash now, swapping debt later

Ask Nedbank Group Chief Executive Officer Mike Brown how to save South Africa’s beleaguered state-owned power utility and his approach is simple: first give it cash and then consider a debt-to-equity swap later.

Eskom is paying so much in interest on its debt – at the same time that its income is falling – that the company is struggling to keep the country’s lights on. To ease the firm’s cash-flow woes, the government is planning a R230bn bailout. While the state initially wanted to spread that over 10 years, a significant portion is now being expedited, with details expected from National Treasury on July 23.

“For all practical purposes, we don’t have any easy or good options available at this stage.” Brown said in an interview in Durban on Friday. Bringing forward the bailout package or increasing the amount “is the most practical short-term solution.”

Other suggestions are being considered to ease Eskom from the burden of more than R440bn, 70% of which is guaranteed by the state. One includes a proposal to convert debt held in Eskom on behalf of over 1 million state workers into equity, as reported by Bloomberg on July 11. Another is said to include shutting coal-fired plants early to get cheaper financing and to make way for renewable energy.

Green energy is a “possible alternative but incredibly complicated to implement and likely to take three to five years to get up and running,” Brown said. “Eskom has a six-month problem.”

The Government Employees Pension Fund will appear before the PIC commission on Monday, with former PIC CEO Dan Matjila to continue his testimony afterwards.

Last week Matjila told his commission of political interference which led to him being removed from the asset manager which oversees R2trn in state funds.

He also told the commission that he did not influence any of the PIC’s investment decisions. 

The inquiry starts at 09:30