This Brief by Charles Collocott considers the overall structures of the Public Investment Corporation (PIC) and Government Employees Pension Fund (GEPF), with a focus on transparency and the framework within which they invest. The need for transparency has been highlighted since the PIC invested over R 1 billion in Independent Media in 2013. The framework for investment is of particular interest since the National Treasury has recently stated that the PIC could possibly become the equity partner in loss-making South African Airways.

The Public Investment Corporation

Established in 1911, the Public Investment Corporation (SOC) Limited (PIC) manages assets of over R1.857 trillion. It is a registered financial services provider, wholly owned by the Government.  The Minister of Finance is the shareholder representative.

The PIC invests funds on behalf of the following public sector entities:

Clients % of assets under management
Government Employees Pension Fund (GEPF) 88.2%
Unemployment Insurance Fund (UIF) 6.7%
Compensation Commissioner(CC) 1.9%
Compensation Commissioner Pension Fund (CP) 0.9%
Associated Institutions Pension Fund (AIPF) 0.7%
Other 1.6%

According to the PIC, “[all] investment decisions are directed by detailed client mandates, which are negotiated individually with each client [including benchmarks] in line with their investment profile and risk appetite. These client mandates comply fully with the requirements of the Financial Services Board (FSB), with which the PIC is registered as an approved financial services provider.” [1]

Three Acts of Parliament govern PIC operations:

1. The Public Investment Corporation Act, 2004, which defines the PIC as a government-owned corporation that is subject to the Companies Act.

2. The Financial Advisory and Intermediary Services (FAIS) Act, 2002, which governs the South African financial services sector. The PIC is registered as a financial services provider with the FSB.

3. The Public Finance Management (PFMA) Act, 1999, which requires that the PIC’s annual financial statements be audited by the Auditor-General. The PIC is therefore accountable to Parliament for its financial management.

The PIC website further states that “[beyond] these parliamentary acts, the PIC is accountable to the millions of South Africans on whose behalf we invest.”

The main investment objective of the PIC is to “achieve strong long-term capital returns above clients’ benchmarks, supported by robust risk management while contributing to the broader social and economic development of South Africa and the rest of Africa.” [1]

The Chairman of the PIC has in the past been the Deputy Minister of Finance. Thus it is today, with the current Deputy Minister, Sfiso Buthelezi, serving as Chairman. His previous chairmanship was as Chairman of Prasa 2009 - 2016. According to a recent news article, before Buthelezi’s appointment to the National Treasury, Treasury conducted and concluded a comprehensive investigation into Prasa  and recommended that Buthelezi be criminally charged. [2]

The PIC’s Asset Management Divisions

1. Fixed Income

The PIC invests only in instruments listed on the Bond Exchange of South Africa and holds more than 42% and 50% of Government and SOE bonds respectively. For example, the PIC holds around 80% of Eskom’s bonds maturing in 2023 and 2026, and over 30% of Eskom’s bonds maturing in 2033 and 2042.  

Concerns have been raised recently about the PIC buying Eskom bonds in private placements since 2014 instead of public auctions.  This was after demand from other buyers started to fall away. As a result of the absence of market forces, it is difficult to know if the yield (price) paid by Eskom is market related. [3]

2. Listed Equities

The PIC is according to its own account one of the largest institutional investors in South African equities, often reported to hold around 12.5% of the market capitalization (cap) of Johannesburg Stock Exchange (JSE). However, according to the PIC’s most recent annual report released 31 March 2016, 48.03% of the PIC’s R1.857 trillion in assets was invested on the JSE, and on that date the JSE market cap was near R 15.260 trillion. Thus the PIC in fact owned 5.8% of the JSE in March last year and not 12.5%.

Approximately 80% of the GEPF’s equities portfolio is managed internally by the PIC on a ‘passive’ enhanced index basis. The remaining 20% is managed externally by active asset managers. The GEPF mandate allows up to 10% of equities to be invested outside of South Africa. Currently PIC claims 5% is invested offshore and the remaining 5% will be invested in the rest of the Africa.

3. Properties

This includes property asset management, development and acquisitions. Among the companies in which PIC Properties invests includes:

  • Pareto Limited, owns premier shopping centres around the country,
  • V&A Waterfront, and
  • Airports Company South Africa (ACSA).

Property made up 5.22% of the PIC’s assets, or R96.94 billion, according to their 2016 Annual Report.

4. Isibaya Fund

Isibaya was established in 1999 to invest in projects located across Africa. The focus areas are:

  • Private Equity - all sizes: early stage venture capital, small, medium and large unlisted companies.
  • Developmental Investments - large-scale and long term infrastructure projects.
  • Isibaya provides finance to private and public sector organisations or to intermediaries (such as fund managers).   It may co-invest with other institutions having with similar objectives


Isisbaya makes up 2.96% of the PIC’s assets, or near R55 billion with the size of the Isibaya Fund more than doubling since 2014.

Isibaya Portfolio exposure at 31 March 2016

Financial services 18%
Renewable Energy & Energy Efficiency  18%
Mining and industrial 16%
Healthcare  10%
Affordable housing 8%
Telecommunications & Media 8%
Road & Air infrastructure 5%
Education 4%
Transport & logistics 4%
Petroleum 4%
Agriculture & Agro-Processing 2%
Consumer Goods 2%
Property 1%

The PIC Annual Report sets out the different asset classes as a percentage of assets under management, but specifics aren’t available (except for the names of the largest property investments). In October 2016 the PIC provided Parliament’s Standing Committee on Finance with a detailed list of its Isibaya Fund investments, but there has been no indication that such disclosure will be regular. Due to the rules governing exchange listed investments, details of the PIC’s listed investments are easier to obtain. For example, all JSE listed companies are required to disclose the details of any shareholder holding 5% or more of the company’s shares.

The Government Employees Pension Fund

The Government Employees Pension Fund (GEPF or Fund) was established in 1996 and has over 1.2 million active members, 400 000 pensioners and beneficiaries, and assets worth more than R1.6 trillion.  The Fund increased to this level from R552 billion in 2006.

GEPF is governed by the Government Employees Pension Law (or GEP Law), to manage and administer pensions and other benefits for government employees.

A Board of Trustees governs the Fund and is accountable for administrative and investment performance.  It also determines the investment policy in consultation with the Minister of Finance.  The Board approves the annual financial statements, and these are presented to Parliament by the Minister.  The Board consists of equal numbers of representatives from members/pensioners and those nominated by the employer (i.e. Government).  Government is responsible for meeting the Fund’s obligations, provided any change in investment policy is subject to the approval of the Minister of Finance. 

The GEPF’s investment strategy is determined by the magnitude and time profile of liabilities, i.e. pension payments. GEPF’s assets are managed primarily by the PIC. As opposed to the PIC, specifics of GEPF’s investment holdings are disclosed in full detail within GEPF’s Annual Reports. 

The strategic and actual allocation of the GEPF is as follows:

Asset class Asset allocation range (%) Asset allocation as at 31 March 2016 (%)
Cash and money markets 0 - 8 1
Domestic bonds 26 - 36 33
Domestic property 3 - 7 5
Domestic equity 45 - 55 53
Africa (ex-SA) equity 0 - 5 1
Foreign bonds 0 - 4 2
Foreign equity 1 - 5 5

The Fund shows an annualized return of 11.1% over the three years ended 31 March 2016.

In terms of the GEP law and the Fund’s rules, an actuarial valuation has to be carried out at least every three years.  The most recent Annual Report, dated March 2014, shows that its liabilities are 121.5% funded (including a reserve of R252 billion).

Independent Media Group

In 2013 the Irish owners of the Independent Media Group (the old Argus group) sold the business to Sekunjalo Investments. At the time it was understood the the PIC financed most of this purchase in the form of loans to Sekunjalo and took for itself a 25% equity stake.

The prudence of this investment has received wide speculation in the press since 2013. There has however been no clarity on the issue due to a lack of information provided by the PIC. All that has been disclosed is an aggregate amount of R 1.275 billion invested by the PIC in Independant Media as presented Parliament in October 2016. This amount invested includes both an equity investment of R 166 333 000 and a loan of just over R 1.1 billion.


Comments recently about the GEPF or PIC as potential equity partners in state-owned entities (such as South African Airways) have raised the danger of pressure to fund ventures in order to assist Government. These would likely not be sound investments for pension funds.

SAA has incurred operating losses during the past five years and it admits that “[cash] flow will remain a critical issue until the airline receives an equity injection to reduce its expensive reliance on debt funding.” [4] SAA’s debt service cost in 2016 was R 861 million versus the operating profit before interest, tax, depreciation and amortisation of R 351 million.

Poor SOE governance was a major reason for South Africa’s sovereign credit downgrade, with SAA’s poor governance being well publicized. However, Minister of Finance Malusi Gigaba “has expressed full confidence in SAA chairperson Dudu Myeni and the airline’s board of directors” [5] signaling little positive change to be expected given that SAA is under Treasury’s control.

SAA’s key financial indicators for 2016 are dismal when compared to other airlines:

  SAA Qantas Air New Zealand
Profit margin 1.2% 10.1% 29.5%
Debt to equity ratio -2.53 4.12 2.44

The negative R 10 964 million equity position (as a result of substantial historical losses) is a major red flag for any prudent investor and the only reason SAA can be classified as a going concern is because of debt it has been able to raise thanks to government guarantees totaling R 19.1 billion.

So far no pension funds have been directed at bailing out the ailing airline.


It is important for the PIC and GEPF to be completely transparent. While GEPF does disclose its investments (which make up 88% of the PIC’s assets), the value of PIC investments not regularly disclosed is significant and the PIC should consider providing detailed presentations on a regular basis to achieve and maintain good governance. 

In terms of GEPF’s rules, any member or pensioner has “the right to communicate directly with the Fund in regard to any matter which affects him or her personally” [6].  If there is concern on the part of members or pensioners about potential changes to the investment mandates, members can approach the Fund directly.

Finally, is it appropriate that a maximum of 14% of GEPF funds may be invested internationally? The limit placed on other unit trust investments suitable for pension funds is 25%. It is accepted that part of Government’s approach to public pension funds is not only to benefit pensioners but at the same time to assist South Africa’s economy to develop.  However, more extensive offshore investment allowances would provide additional risk balancing for GEPF and still channel most investment into South Africa. It may be timeous for this statutory limit to be revised or, at least, be revisted.

Charles Collocott



[4] South African Airways Group Integrated Annual Report for the Year Ended 2016
[6] Section 22, Rules of the Government Employees Pension Fund, Schedule 1 to the Government Employees Pension Law 1996.