Africa Banking Economy Finance South Africa

Why Africa’s biggest fund manager is under fire

The Public Investment Corp. is the behemoth of Africa’s fund managers, overseeing $150 billion in pension assets for more than 1 million South African state workers. While the PIC, as it’s widely known, was long heralded for delivering market-beating returns, its reputation has been scarred by accusations that it made questionable investment decisions and didn’t follow proper procedures. An official inquiry into how the fund manager is run has starkly highlighted its management shortcomings.

1. Why is the PIC so important?

It’s Africa’s largest fund manager, with the assets under its control equating to about 10% of the total market value of all companies trading on Johannesburg’s stock exchange. Its investment decisions can thus have major repercussions for financial markets and can determine whether companies fly or fail. Also, the government guarantees state workers’ pensions, meaning that Pretoria — and by extension taxpayers — would be on the hook should the PIC make insufficient returns to cover required payouts.

2. What triggered the investigation?

An anonymous whistle-blower made allegations of financial wrongdoing at the fund manager about two years ago, and others surfaced in subsequent media reports. Private fund managers also questioned its decision-making processes and the wisdom and valuation of some of its investments. President Cyril Ramaphosa ordered the inquiry in October last year, one of several he’s instituted to probe alleged graft since taking office 16 months ago after the ruling party forced an end to Jacob Zuma’s scandal-marred nine-year rule.

3. Who’s been implicated?

A number of top staff, most notably Daniel Matjila, who served as chief executive officer for four years before quitting in November last year and Chief Financial Officer Matshepo More, who was put on precautionary suspension in March after she was accused of interfering with the commission’s work. The head of listed investments, Fidelis Madavo, was suspended in January. They all deny wrongdoing. In February, almost the entire board, including Mondli Gungubele, the PIC’s chairman and South Africa’s then-deputy finance minister, tendered their resignations after the money manager ordered a forensic probe into allegations that More and two non-executive directors had acted inappropriately. They’ve remained in their posts while Finance Minister Tito Mboweni decides on their replacements.

4. What has the probe found so far?

Witnesses have told the commission how processes were routinely flouted, polices were breached and questionable investments were made by senior managers. They included the purchase of bonds issued by cash-strapped state power producer Eskom Holdings SOC Ltd. and a stake in Ayo Technology Solutions Ltd. that valued the little-known technology company at 50 times what its assets were estimated to be worth. There’s been no conclusive evidence that PIC officials directly benefited from their actions, although several of them were alleged to have been closely linked to executives at companies in which the PIC bought stakes. They include Matjila, who allegedly played a key role in approving the Ayo deal and was friends with media tycoon Iqbal Surve, who controlled the company. Surve testified that Ayo was a viable investment and denied they had a personal relationship.

5. Where is this going?

The commission has until July 31 to submit its final report to Ramaphosa. It will rule on whether any laws, PIC policies or contractual obligations were breached and whether any director, employee or their family members unduly benefited. It also has the mandate to make recommendations on how the governance and structure of the PIC can be improved. It will be up to the police and National Prosecuting Authority to charge anyone who engaged in criminal conduct. Meanwhile, a law that aims to improve oversight of the PIC and ensure it becomes more transparent has been approved by lawmakers and is awaiting Ramaphosa’s sign-off.

Source: Bloomberg

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