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After the Bell: The PIC shanks AYO out of the rough, on to the fairway

After the Bell: The PIC shanks AYO out of the rough, on to the fairway
Tim Cohen
By Tim Cohen
2 Oct 2024
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What state pensioners are asking for in the Public Investment Corporation’s AYO Technology Solutions investment debacle is that the PIC should not be so ridiculously gullible. Not once, but twice.

I’m not a golfer but friends who are, tell me golf, oddly, is one of the few sports where it is really easy to cheat. After hitting the ball off the tee but before getting to the green, players in games are often out of sight of their cohorts. Losing a ball in the rough can be ameliorated by discovering one in your golf bag and placing it surreptitiously on the fairway. A quick boot can improve your lie in the rough. Who’s to know?

Consequently, there are tricky questions of etiquette if you suspect someone of cheating. Are you really sure they did cheat? It would be terrible to falsely accuse someone. So the general rule among golfers is that if you suspect someone of cheating, say nothing, but just don’t play with them again.

It’s a pretty good rule for business too; if someone cheats you, the chances they will do so again are pretty high, I would say. If someone lies to you, well, it’s a racing certainty they will do it again. And the solution is obvious: don’t do business with them again.

This rule of thumb is obvious to everyone, it seems, other than SA’s largest investor and fund manager, the Public Investment Corporation (PIC). The PIC is effectively the guardian of the pensions of state employees, past and present, and has come under all kinds of pressure following the publication of the Mpati Commission in 2020.

Masterpiece of mediocrity


Today the PIC released its results for the year and you know, on the surface, it is fine. Until you start thinking about it. Over a five-year period, the PIC returned 0.01% more than its benchmark for its largest client, the Government Employees Pension Fund. That’s not good, but by the standards of SA’s state-controlled institutions and enterprises, it’s a masterpiece of mediocrity. Not losing money is what passes for triumph these days.

But just think about it a little longer. The PIC is so huge, that it’s almost impossible for it to either outperform or underperform. The PIC has total assets under management (AuM) of R2.69-trillion, which grew by R95-billion or 3.6% during the financial year to March 2024. Essentially what that means is that the organisation could lose R200-billion, say, and it would barely register. Everything – the successes and the failures – comes out in the wash as it does for lots of very large asset management groups. 

The PIC considers this to be an “admirable return” considering the weaker economic conditions. Well … sort of. It depends a little on how you calculate assets under management. For normal fund management groups and, as it happens, for the PIC, an increase in AuM is constituted by the value of client investments at the start of the year, plus the performance of the assets, plus the inflow of funds, plus dividends, minus fund outflows.

But the PIC is not a normal fund manager because state employees can’t decide to invest their pensions somewhere else and they can’t decide to not invest at all. The PIC’s inflows are, in a sense, guaranteed, or at least more or less predictable. As are its outflows. Its clients can’t suddenly decide en masse to invest with Black Rock rather than JP Morgan, for example. It’s a closed system.

The only real way to judge how the PIC actually operates is to look at its unlisted investments, even though they are barely 5% of the total book. So much of the other investing is outsourced to a range of other asset managers. But the unlisted investments are where the PIC makes its own calls, rolls up its sleeves, and gets its hands dirty. 

PIC’s AYO embarrassment


And that of course brings us to AYO Technology Solutions, the listed info tech company controlled by Sekunjalo, which is controlled by controversial businessman Iqbal Survé. This story has been told a hundred times, but the quick refresher is that the PIC invested R4.3-billion in the company in 2017. It subsequently became obvious to absolutely everybody that the PIC had been horribly duped and after years of losses, the share price was decimated and went from R43 to R4.70 a share. It’s been a horrible embarrassment for the PIC. But that is an old story.

The comparatively new story is that after the Mpati commission made the obvious point that the decision to invest in the company was dodgy, the PIC took AYO to court to try to get its money back. The case was fought on the basis that AYO lied to it about the company’s prospects. Not that hard a case to win, you would think. This was kinda urgent because AYO had taken to dishing out huge dividends over the years, even while it was making losses, based on the interest alone it was earning on the PIC’s cash pile. It’s been one of the most obvious investment frauds of our era and it’s even more egregious because the losers are people scraping by in their dotage.

At last, the PIC acted and went to court although, alas, only some R1.2-billion of the initial investment remained. However, the PIC then shocked the investment community when it settled the case out of court, effectively for half what was left of the cash pile. For a kind of bogus share buy-back, the PIC got R619-million, which we heard today was paid in April last year. Phew. Relief. 

‘Sufficient value’


At the time, the PIC management, which cut the deal without telling its board, said this was the best commercial deal in the circumstances. But now it turns out that the AYO share price has dropped even more, from the R4.50 at which the deal was done to around 50c. So, how does the PIC feel now about its new deal? PIC chair Abel Sitole today defended the decision, saying that “the PIC derived sufficient value at the time the deal was done”.

Well … no. Sufficient value would be to get as much of the cash back as possible, not half the cash back. Now the PIC has suffered not only one huge loss from its initial investment, but it’s also suffered a second loss because its remaining investment has declined even further (less, of course, the cash that it managed to extract last year). Sitole said, “AYO will not be treated differently” from its other struggling investments.

I’m not even sure what that means. Nobody is asking for them to be treated differently. What state pensioners are asking for is that the PIC should not be so ridiculously gullible. Not once, but twice. And that when it is cheated, it gets angry and demanding, as opposed to treating it like an unfortunate dip in the market. And that’s not even considering its other disastrous investment involving Survé, in the Independent Group.

The AYO example has made pensioners curious about the rest of the PIC’s unlisted portfolio. So under pressure from legislative changes, the PIC released the full list of its unlisted investments. But, par for the course, it’s just a list of names. For an organisation that trumpets transparency and righteousness, it would have been nice to get an investment contribution and current return on each of these investments, but no such luck. 

If only they had learnt the lesson of golf. If someone cheats you, don’t play with them again. Just don’t play with them. DM

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