Why client profile should contribute to PIC board’s make-up

If there is anything the “state-capture project” has bequeathed us — unintentionally, of course — it is the reopening of age-old debates about the configuration of key institutions and sites of power in society. One such site of power is the Public Investment Corporation (PIC), Africa’s largest asset manager.

No better proof exists of the scare-mongering that characterises our public debates than the alarm with which the suggestion of workers’ representation on the PIC board was greeted by the media and business community.

Of course, this suggestion comes in the midst of fears that the PIC’s coffers will be raided by the midnight marauders from Saxonwold and their acolytes in the political sphere.

The subject of this article is not the merits of the suggestion, but the debate that labour’s suggestion stimulated.

Two related questions are worth asking. First, what would be wrong with having workers’ representation on the PIC board? Second, and related to the first question, what effect would such workers’ representation have on the investment philosophy and asset allocation decisions of the PIC?

I ask the latter question because the suggestion is often made that workers’ influence over the investment of pensions would lead to lower returns and place such assets at risk.

Let’s look at the first question. A colleague who is a seasoned business journalist asked me why workers would want representation in the PIC when such practice isn’t common when the likes of Allan Gray manage institutional funds (many of which include a sizeable amount of workers’ pensions).

My response was that the comparison was akin to comparing apples with oranges; the PIC isn’t Allan Gray, there are numerous differences. The PIC refers to itself as “an investment management company that focuses exclusively on the public sector … [and is] wholly owned by the South African government”.

However, the PIC recognises that in terms of how it operates, it is comparable to any private asset manager. Confusing? Not really.

What might clarify the confusion is who the PIC’s clients are, notably the Government Employees Pension Fund, whose funds constitute 87.72% of assets under management. This is workers’ money, whereas Allan Gray manages the funds of multiple individuals and institutions, as well as other client types. It is common cause that workers’ pension funds don’t constitute as much of the assets under management by Allan Gray as with the PIC. In asset allocation and the pursuit of returns commensurate with the risk appetites and expectations of their clients we can compare the two. However, in terms of client profiles we can’t.

Surely, it is this client profile and its underlying mandates that must in some way inform the composition of the board? This is the point that the parliamentary portfolio committee on finance accepted.

IT MIGHT MAKE SPACE, HOWEVER, FOR THE EMERGENCE OF ALTERNATIVE INVESTMENT PHILOSOPHIES

Now what would this change? A cynical view might suggest not much. A point I made to Prof Patrick Bond in 2016 during a dialogue is that workers’ representation alone is not enough to change patterns of investment and asset allocation. Ask Frans Baleni and Zwelinzima Vavi, who sat on the Development Bank of Southern Africa and Industrial Development Corporation boards in the past with no visible change to the structure of industrial financing.

It might make space, however, for the emergence of alternative investment philosophies that extricate these entities from their fixation on financial market investment and the grip of financialisation.

The suggestion by workers’ leaders in Parliament last week that some workers’ funds be used to extend access to housing finance for those who can’t get it from the traditional banking sector is an example of such “alternatives”. These suggestions are timely as they might give substance to the PIC’s vision “to be the leader in developmental investing for [the] sustainable financial prosperity of its stakeholders”.

Its main stakeholder, the working people in the public service, should expect no less.