Foundations of GEPF eroding

OF UNRAVELLING? Even in the worstcase scenario, fund members are protected from poor investment decisions. But is there a tipping point? IS IT SHOWING SIGNS

With the R2.2 billion injection into SAA, Government Employees Pension Fund (GEPF) members were assured their pension savings wouldn’t be impacted, although it’s unclear how much GEPF money is invested in state-owned enterprises.

Being a defined benefit fund, the GEPF pension benefit is guaranteed by government. The investment manager for the GEPF is the Public Investment Corporation. The GEPF, worth R1.7 trillion, represents about 88.2% of assets managed by the PIC. The GEPF also appointed other asset managers to manage part of the investment portfolio, but it’s not possible to ascertain their independence, nor can one judge their investment performance.

However, the GEPF’s financial future can’t be isolated from the financial demands placed on it by the PIC. A PIC investment strategy is to contribute to SA and Africa’s broader social and economic development. The PIC not only invests in good companies that earn healthy returns, but in up-andcoming companies. This is a riskier investment without any guarantee of a return and should be closely monitored.

The most recent audited GEPF financials are dated March 31, 2016 and we’ll have to wait until at least October 2017 for the next set. These financials carry some warning signs. Only the top 10 investments per investment category are disclosed, as a result a significant percentage of assets are disclosed as “other”, making it difficult to form any view on the risk.

The R1.64 trillion investments include R22.2 billion direct loans. The largest loans granted include funds advanced to the IDC, Kilimanjaro Sakhumnotho Consortium, Tanga Cement Company, Independent News & Media and Opiconsivia Investments 239. The fund also has a 66% equity investment in Opiconsivia Investments 239, an unlisted entity, valued at R4.8 billion in 2015 and marked down to R1.9 billion in 2016.

The rule of only disclosing the 10 largest loans results in incompleteness, as R9.6 billion (43.27%), of these loans are disclosed as “other”. Crucial information regarding these loans’ performance is lacking. Unsecured loans would carry a higher risk rating.

There’s been no disclosure of any default in payment of interest or capital. There’d also be investment risk in the R153.8 billion invested in bills and bonds of struggling parastatals, the R318.9 billion invested in “other” equities and the R41.1 billion in “unlisted equities”.

There should be full disclosure of all investments, including loans to enterprises.

Despite the assurance the state is obliged to pay in any shortfall in pension benefits that would result from poor investment decisions, it doesn’t have a bottomless piggy bank that can carry on neutralising shortfalls caused by inefficiency and bad decisions.

Continuing to raise taxes isn’t the answer either.

Unclear how much GEPF money is invested in SOEs.