By Lehlohonolo Lehana.
Africa’s biggest pension fund expects to cut the amount of money it allocates to a division of Public Investment Corporation (PIC) that has to date helped it fulfill some of its environment, social and governance aspirations.
The Government Employees Pension Fund (GEPF) allowed a R70 billion allocation agreement with the PIC, the continent’s largest fund manager, to lapse in March and is now negotiating a new mandate.
GEPF firmly believes in SA’s economy and investment opportunities, saying it still generates decent returns from the country and any moves to offshore markets would have to be carefully considered.
The pension fund has revived a long-standing plan to reduce its dependency on the SA economy and the JSE for financial returns by reviewing its asset allocation strategy, which mandates the way it invests its assets worth R2-trillion.
The GEPF is the biggest investor on the JSE, and if it shifts more investments into offshore markets — even by 2% — it would spark a major outflow of funds from the local exchange, given the pension fund’s enormous scale. It would cause more disruptions at the JSE at a time when it faces a smaller universe of companies that have the appetite to list on the exchange.
Musa Mabesa, the GEPF’s head, said the pension fund had concluded discussions with the National Treasury about making changes to its investment mandate, the first step in making more investments into offshore markets possible. But the GEPF board is still in talks with the Public Investment Corporation (PIC) about whether this is necessary and how to effect more allocations into foreign-asset classes such as company shares, fixed income instruments (government debt, bonds of state-owned entities and companies) and property. The PIC manages the GEPF’s investments.
There are already changes in the GEPF’s investment mandate as its allowable exposure to investments outside SA has been increased from 10% of the pension fund’s assets to 15%. This increased threshold is relatively small compared with the allocations of other private-sector pension funds, which can invest up to 30% of their portfolios into offshore markets.
But the GEPF is still conservative in its offshore investment approach as it is not even taking advantage of the 15% allowable threshold. The GEPF’s offshore investment portfolio (mainly foreign and rest-of-Africa shares, and bonds) made up about 8% of its total assets, according to the pension fund’s 2020/21 annual report.
Since it was founded in 1996, the GEPF has largely invested in SA’s economy, opting to invest a large portion of its assets into JSE shares including Naspers, MTN, Vodacom, FirstRand, Sasol, and many others.
The GEPF wrote off bad loans to more than 30 entities totalling R7.4-billion during its 2021 financial year, down from R11.9-billion in 2020. The GEPF’s impairments made up 15% of its total loan book of R49.7-billion.
The biggest write-off is a loan linked to the Land Bank (a state-owned lender that has defaulted on debt payments), with the GEPF writing off R3.5-billion. Other big loan write-offs include Independent News and Media SA ( linked to Igbal Surve), amounting to a further R187.8-million (R112.5-million in 2020); Belelani Capital (write-off of R1.2-billion); S&S Refinery (R133.7-million); and Smile Telecoms (R122-million).