State pension fund was in the dark about Ayo transaction

The Government Employees Pension Fund (GEPF) was not consulted when its members’ money was used to invest R4.3 billion in Dr Iqbal Survé’s controversial Ayo Technology Solutions. But it should have been.  

The Public Investment Corporation (PIC), which manages funds on behalf of GEPF, was the biggest buyer of Ayo shares when the company made its debut on the Johannesburg Stock Exchange (JSE) in December 2017. It purchasing all the publicly available shares, or a 29% stake for an overvalued R43 per share. 

The deal is subject to scrutiny by the Mpati commission of inquiry into the PIC after investigations into the deal found that senior individuals within the asset manager, including former CEO Dan Matjila, circumvented investment procedures and governance processes when they finalised the investment. 

Ayo has maintained that no impropriety was involved in the investment process. However, the PIC has lodged summons at the Cape High Court to recoup the money, saying it was misled about the prospects of the company.

GEPF should have been told about Ayo

Testifying before the commission on Monday, the GEPF’s principal executive officer Abel Sithole said the PIC only began engaging with the GEPF on the deal when it started asking questions about the company’s valuation as this was raised through various media reports. 

In its defence, the PIC said that it did not inform its biggest client, which accounts for over R1.8 trillion of the total R2 trillion assets that it manages, because the Ayo deal fell within the listed investments portfolio where there is no obligation to inform the GEPF. 

However, Sithole told commissioners that he did not agree with this explanation, saying it was “incorrect”.

Sithole said that prior to Ayo’s listing, the “funding arrangements are legally classified as unlisted or accounted for as such, it’s not clear why the funding arrangement would be considered to be listed”. 

Read: Ayo valuation ‘stretched’ to meet Survé’s demands

The board of trustees of the GEPF made a resolution in October 2017 that the PIC needed to get its approval for investments above R2 billion in the unlisted portfolio.

This meant that an investment such as Ayo should have been submitted to the board of the GEPF through its investment committee for approval, subjecting it to greater scrutiny and interrogation. 

The first time that the GEPF’s investment committee formally discussed the transaction with the PIC was in a meeting on July 13 2018, where the PIC explained its reasons for investing in Ayo at the price that it did.

Protecting state workers’ money

In general, Sithole said there was constant oversight and engagement taking place between the PIC and the GEPF to hold the state asset manager to account on how it manages its funds.

Should there be instances of concern, Sithole said the first response from the GEPF is to seek a remedy than to look for punitive response. 

In significant cases of wrongdoing by the PIC, Sithole said the GEPF could withdraw its mandate from the PIC and look for other means to manage its assets. 

“The PIC is a manager and people believe that there is this unbroken umbilical cord between the two organisations,” said Sithole, adding that the law that does not exist. 

Fund has grown 

But despite multiple reports of governance failures and questionable transactions, Sithole said that to date, there has not been any deliberate wrongdoing that would prompt the GEPF to act and take sanction against the PIC. 

He mentioned how the fund had grown since the state made the decision to fund it and diversify its investment portfolio by allowing it to invest in the open market. 

In the 2017/2018 financial year, the fund’s assets grew by 8.3% from R1.7 billion to R1.8 billion. 

“This growth is a vote of confidence in how the pension fund is managed and how funds are invested,” said Sithole.