A governance workshop held by the Public Investment Corporation (PIC) has recommended that the institution appoint an independent chairperson with investment experience as opposed to the deputy finance minister.
The workshop, held in May, was commissioned by the judicial inquiry probing issues of governance at the PIC and attended by big local and international asset managers who manage similar funds to the PIC, as well as executives and other stakeholders.
The workshop looked at the four terms of reference of the commission: the client mandate, investment processes, operating model and governance issues.
No ex officio chairpersons
Independent financial professional Muitheri Wahome on Wednesday presented the inquiry with a report from the workshop which stated that the chair should have “significant background and demonstrable track record in investments or business rather than an ex officio chairperson”.
Finance Minister Tito Mboweni has yet to appoint a permanent board since the previous one resigned in February. The recommendations of the workshop are in contradiction with the pending PIC Amendment Bill that has been awaiting President Cyril Ramaphosa’s signature for about the same time.
The bill seeks to formalise the historical practice of appointing the deputy finance minister as chair or, alternatively, that one of the economic cluster deputies should head the board. The delay in finalising the bill has been partly attributed to the ongoing PIC inquiry which is expected to submit its final report in July.
The report will be taken into consideration when the commission makes its final recommendations to Ramaphosa.
Putting together a board
The workshop was also in favour of unions being represented on the board provided that the individuals appointed meet the “minimum board competency requirements”.
Wahome said from her recollections of the presentations made at the workshop that the call for union representation was partly driven by a lack of trust by stakeholders in the PIC’s ability to execute its mandate as expected.
“If there was greater comfort on governance matters then this might not necessarily be required,” said Wahome.
As opposed to the finance minister appointing the board in consultation with cabinet, the workshop proposed that in future this be done by a board nominations committee within the PIC.
However, in the present situation, participants said the chairperson, the new chief executive and the finance minister should work together to establish a board that should have “broad competence in asset management and business”.
Separation of powers
Wahome told the commission that the workshop also proposed that the chief executive and investment officer positions be separated. The two were combined when Dan Matjila was appointed head of the PIC, a move that has been described as providing him with too much power over the administration and investments of the corporation.
“This separation must exist in theory and be rigorously and consistently applied in practice,” said Wahome.
The proposals are expected to ensure the success and sustainability of the PIC into the future while creating an environment in which it is able to fulfil its client and shareholder mandate.
PIC ‘largely fulfilling its mandate’
The PIC has a dual mandate which involves generating returns on behalf of its clients and contributing to the developmental goals of South Africa.
From the information shared at the commission, Wahome indicated that in the 10 years to March 2018 the PIC produced returns relatively on par with the benchmarks set by its clients.
However, the commission raised concerns about the performance of the Compensation Fund’s investment portfolios managed by the PIC – the Compensation Commissioner Fund and the Compensation Commissioner Pension Fund – which have both missed their targets over the past two years.
Compensation Fund investment performance
At the same time, of 17 developmental investments made on behalf of the Compensation Fund by the PIC, only eight are performing in line with expectations while six are distressed, with “low prospects of recoverability”.
The final three are underperforming, with “significant variance to budgeted revenue, governance failure and breach of contract”.