The PIC’s interim board bows out with a whimper

The interim board of the Public Investment Corporation (PIC), which was appointed in July 2019, stepped down at the end of October.

With assets under management worth around R2.3 trillion (2020: R1.9 trillion), the PIC is the largest asset management company in Africa. The Government Employees Pension Fund (GEPF) is the PIC’s largest client, comprising 89.24% of assets under management.

At the media briefing which followed the final meeting of the interim board on Thursday, October 28, outgoing PIC board chair Dr Reuel Khoza said that at the time the interim board was appointed, the reputation of the PIC was beset by allegations of misconduct and irregularities.

Read: Facts, figures and more from the PIC’s annual report

“The PIC was viewed with suspicion and alleged to serve those who were politically connected,” he said.

Finance Minister Enoch Godongwana, who was busy electioneering and campaigning last week, has not yet named a successor to Khoza, nor a new PIC board.

Mpati Commission

The Judicial Commission of Inquiry into Allegations of Impropriety at the PIC was appointed by President Cyril Ramaphosa on October 4, 2018, and chaired by Judge Lex Mpati.

The commission’s report (the Mpati Report) was released in March 2020. The commission made many recommendations towards improving governance processes and accountability, and an advisory panel led by retired judge Yvonne Mokgoro was established to assist the interim board in carrying out the recommendations of the commission.

Strengthening the key performance areas

Khoza said that when the interim board took over in July 2019, some of the shortcomings were so obvious that it didn’t need a committee to investigate them.

The memorandum of incorporation was revised, and changes were introduced to the operating model.

There was an overconcentration of executive power in the position of the CEO. All key positions have been filled, chief operating officer (COO), chief risk officer (CRO) and chief technology Officer (CTO), except for the position of the chief investment officer (CIO).

The board took steps to strengthen the key performance areas:

  • Governance: A separation of duties in management was introduced. The Social and Ethics Committee (SEC), introduced to implement transformation in 2019, was renamed SETCO (Social, Ethics and Transformation Committee).
  • Investment: The CIO oversees investment processes and the COO oversees investment operations. The Investment Committee (IC) is a sub-committee of the board, and comprises separate committees for listed and unlisted investments. The Portfolio Management Committee reports to the IC. Independent experts have been appointed to assist the IC in technical matters. ESG (environmental, social and governance principles) has been incorporated into investment processes.
  • Risk management governance and internal control: An Audit Committee and a Risk Committee were established. An external service provider was appointed to assist the PIC with a Risk Management Improvement Framework (RMIP). The risk mandate was expanded to include anti-bribery and corruption, ESG and ethics. The PIC has adopted a “more stringent and rigorous approach than what is prescribed by the Financial Intelligence Centre Act” in regard to politically exposed persons. External evaluators present the valuation of unlisted investments directly to the Audit Committee.

True test of performance?

The next GEPF actuarial valuation should be completed by the end of December. That will be the true test of how the PIC has performed in managing the investment portfolio on behalf of the GEPF.

GEPF is a cash cow no longer
The sitting duck in the corruption fallout

Prior to the interim board being established, the PIC suffered some serious losses. There is the notorious investment in Ayo Technology Solutions of R4.3 billion, the Isibaya portfolio of unlisted investments, and investments in VBS Mutual Bank, Lancaster 101 (which held shares in Steinhoff), Brait, Choppies Enterprises and EOH.

The PIC said that it has been “resolute in implementing the [Mpati] Commission’s recommendations and to act decisively against parties identified in the report”.

“Remedial steps included disciplinary procedures against implicated officials, full cooperation with law enforcement agencies in respect of criminal investigations, and civil actions that were instituted to recover funds from investments that contravened PIC policies and governance processes.”

However, this is not obvious to the public.

PIC fails to provide an exemplary service to government pensioners
The GEPF faces five red flags
The GEPF, an abused client

At last week’s press briefing, Moneyweb asked the PIC if former CFO Matshepo More had been fired or asked to resign, whether her pension funds have been forfeited, and if the matter had been handed over to the National Prosecuting Authority (NPA).

In reply, PIC board member Advocate Makhubalo Ndaba, carefully choosing his words, said that after receiving the report on the disciplinary inquiry two weeks ago, the interim board had “terminated the contractual arrangement”.

In regard to whether her pension fund had been forfeited, Ndaba referred to her as an “employee”, and said that the PIC “follows the law, and the Pension Fund Act”. Further, “several matters had been referred to the Hawks”.

Moneyweb notes that the applicable act is the Government Employees Pension Law, 1996.

More was suspended in March 2019, on full pay. She earned R6.9 million for the financial year ended 2021. From Ndaba’s reply, Moneyweb has deduced that More will receive her full pension benefits.

Meanwhile, there are other highly paid executives who have either been “suspended” or placed on “special leave”, still receiving their full salaries, including a short-term incentive and a long-term incentive, and their pension funds are intact.

One would expect pension funds to be frozen until disciplinary and criminal charges have been finalised. One would expect consequence management, not implicated persons merely disappearing off the payroll, paid up to date, with pension funds intact.

Does the interim board bow out with a bang, or a whimper?

Source: moneyweb.co.za