PIC Amendment Act: Chairman will be a government deployee

It has taken more than two years, but finally, the PIC Amendment Act 2019 has been signed into law by President Cyril Ramaphosa. 

It is hoped that the new act will bring more effective oversight to the R2-trillion worth of pension fund assets that the PIC manages on behalf of the Government Employees’ Pension Fund, the Unemployment Insurance Fund and the Compensation Fund.

In the past few years, many questions have been raised about excessive political interference in investment decisions and poor returns generated for pensioners as a result of these decisions. 

The R4.3-billion that the PIC invested in Ayo Technology Solutions in December 2017 is probably the most famous of these. However, the PIC has a large portfolio of investments into unlisted projects and companies and the transparency around these investments and their performance is less than desirable. 

In its latest annual report, the PIC noted that its unlisted portfolio generated a subdued 1.87% internal rate of return against a benchmark of 8%, and that many of these investments were in a state of distress.

All of this prompted the establishment of the Judicial Commission of Inquiry into allegations of impropriety regarding the PIC in 2018. 

Chaired by former president of the Supreme Court of Appeal, Justice Lex Mpati, and better known as the Mpati Commission, its findings were released only in March 2020.

While work on the act began before the Mpati Commission, many of the amendments dovetail with recommendations made by the Commission.

The new act prescribes how the PIC board will be constituted in future and provides for trade union and pension board representation. It also provides for greater transparency in PIC investments that require depositors’ approval.

However, when it comes to the important issue of how the chair should be appointed, the new act appears to be retrogressive.

The act provides that the minister of finance, as government’s representative, “may designate the Deputy Minister of Finance or any Deputy Minister in the economic cluster” to be appointed as chairperson of the board. This will be done in consultation with the Cabinet.

This is contrary to the recommendations of both Minister of Finance Tito Mboweni and the Mpati Commission. The commission recommended that the chair be an independent person and not a political person, to improve governance. 

It was Mboweni who appointed the PIC’s interim board of directors and independent chair, Dr Reuel Khoza, after the en-masse resignation of the entire board towards the end of 2018.

This board is highly skilled and the chair has served the asset manager without fear or favour. Under his watch there has been demonstrable progress in the implementation of the Mpati inquiry recommendations. Even before the Mpati commission had finished its work, the board had begun making changes, including separating risk from the audit and risk committee and removing the investment committee from the control of the CEO. 

Of the top five executive positions at the asset manager, all have been filled but one. The board is still looking for a director responsible for investments. Notably, it has also appointed a senior executive responsible for ethics, a nod to the fact that without ethics, competence means nothing. 

Much of this work has overlapped with the recommendations of the commission.

It must be said, however, that the other provisions in the act go a long way towards promoting transparency in the PIC’s investment processes and decisions.

These include the requirement to publish the details of new investments, on behalf of its clients, on the PIC website; the requirement to report, annually, the total number and details of “significant transactions” to the minister of finance, which require approval in terms of the Public Finance Management Act; the requirement to “publish and submit a report on all investments to the Minister of Finance for tabling” in Parliament; and the requirement for the PIC to “consider certain guidelines when investing deposits” on behalf of its clients.

Abel Sithole, CEO of the PIC, welcomed the amendment act as a significant step towards greater transparency and accountability for the PIC’s investment processes.

“Ultimately, the PIC is accountable to its clients and their beneficiaries and to government as shareholder and guarantor of its clients. The new legislation provides for greater oversight by all stakeholders,” he said.

Approached by Daily Maverick, Khoza declined to comment.

“As the current chairman of this board, it would be inappropriate to comment.” 

These amendments will be implemented progressively over time by the minister of finance, which means that barring specific directives from the minister in the near future, the present governance structures and processes continue.

As the term of the transitional board expires only at the end of November 2021, it seems unlikely that wholesale changes will be made before then. In fact, it seems likely that under Mboweni, the board may be asked to extend its term to the end of the 2021/22 financial year. DM/BM