PIC: a hole in the bucket?

FINANCIALS: ASSET MANAGER GOING FROM OBFUSCATION TO BARE MINIMUM DISCLOSURE

As concerns around bailout of state companies persist.

With R1.928 trillion of assets under management, the Public Investment Corporation (PIC) is the largest asset manager in South Africa.

It may be a government entity, and the members of the pension funds may be government employees, but don’t be misled, the PIC is investing private money. In this regard, the PIC should be above reproach and its annual financial statements should set a benchmark for transparency and financial stability.

R1.691 trillion (87.72%) of the PIC’s funds represents assets managed on behalf of the Government Employees Pension Fund (GEPF).

The objectives of a normal pension fund would include growth, capital preservation and income. Though the GEPF is a defined benefit plan, the payment made to GEPF pensioners is based on a formula. The payments are guaranteed by government. This may be cold comfort in years to come.

With all the accusations and fears of state capture going around, and the PIC’s commitment to supporting state-owned companies (SOCs), as communicated in its shareholder report, one would have expected its financial statements to have improved on the 2016 disclosure. But no, they are as opaque as ever.

The organisation haphazardly invests in many well-meaning projects, but there is no disclosure as to the return made on these investments, or those investments which are impaired. Nor of mistakes that have been made, nor of investments that have gone belly up.

The PIC disclosed basic information on its Unlisted Investment portfolio to the standing committee on finance, but there is no information about returns and impairments.

International Financial Reporting Standards require disclosure of events that occur after the reporting period and before the release of the annual report such as a material change in investments. Surprisingly, none have been reported.

The PIC has a long way to go to improve disclosure by providing, for example: 1. The actuarial present value of future pension payments. 2. Assurance as to whether assets have been set aside or earmarked to secure the future pension payments. 3. The amount received from the GEPF/other pension funds regarding pension contributions, and the amount payable to the GEPF/pension funds. Or are the pension funds having to rely on funding retirement benefits out of current pension contributions? 4. Details of the size of portfolio allocated to the various external asset managers, and the return per asset manager. 5. Details of direct loans, interest charged (or not), and impairments.

The Public Servants’ Association, which has some 230 000 members, is concerned the PIC is using their pension money to bail out failed state-owned enterprises. A small practical problem, the PIC ensures that many assets are directly owned by the GEPF. Even if the GEPF extricates themselves from the grip of the PIC, they may still be holding some duds.