State pen­sion fund may ex­pand for­eign port­fo­lio

GEPF’s prin­ci­pal ex­ec­u­tive of­fi­cer says di­ver­si­fy­ing ‘one of the most pa­tri­otic things we can do’

Business Day - - FRONT PAGE - War­ren Thomp­son Fi­nan­cial Ser­vices Writer

The Gov­ern­ment Em­ploy­ees Pen­sion Fund (GEPF) con­tin­ues to seek ways to di­ver­sify its re­turns in the wake of scan­dals sur­round­ing Stein­hoff, which has ex­posed the fund’s de­pen­dency on the lo­cal mar­ket.

The fund ear­lier in 2018 sig­nalled its in­ten­tion to al­ter its strate­gic as­set al­lo­ca­tion, which man­dates the way it in­vests its R1.8-tril­lion in as­sets.

The fund’s prin­ci­pal ex­ec­u­tive of­fi­cer, Abel Sit­hole, said the fund had be­gun dis­cussing pro­posed changes with the Trea­sury, given the ef­fect this could have in sup­port­ing eco­nomic growth and devel­op­ment in the coun­try.

“We have not reached fi­nal­ity yet, but the con­ver­sa­tion is about di­ver­si­fi­ca­tion more broadly.

“One of the ar­eas of di­ver­si­fi­ca­tion is look­ing at long-term in­vest­ments in in­ter­na­tional sov­er­eign debt, as well as cor­po­rate debt.

“We are in­ter­ested in fixed­in­come as­sets be­cause it can se­cure the long-term in­come re­quired to pay our long-term li­a­bil­i­ties,” said Sit­hole, who was pre­sent­ing the fund’s an­nual re­port in Jo­han­nes­burg on Wed­nes­day.

As a de­fined-ben­e­fit fund, the GEPF has an ex­plicit guar­an­tee that any short­fall in re­spect of pay­ing ben­e­fits to its mem­bers will be cov­ered by the gov­ern­ment.

As at the end of March 2018, the fund had only a 5.5% ex­po­sure to for­eign in­vest­ments, a rel­a­tively pal­try amount com­pared to the al­lo­ca­tions of other re­tire­ment funds, which can in­vest up to 25% of their port­fo­lios off­shore.

“Di­ver­si­fy­ing is one of the most pa­tri­otic things we can do,” Sit­hole said.

“We need to di­ver­sify our ex­po­sure away from the econ­omy, but we also need to di­ver­sify our ex­po­sure to cer­tain as­set classes [in­clud­ing] good, avail­able pro­jects in the non­listed area of the econ­omy. Not in get-rich-quick schemes; it needs to be done cor­rectly.”

The fund’s in­vest­ment port­fo­lio grew 8% to R1.8-tril­lion. More than half of this (R970bn) is in­vested “pas­sively” in lo­cal listed eq­ui­ties, with lo­cal fixed-

in­come ex­po­sure (R563bn) mak­ing up an­other large chunk of the port­fo­lio. The more con­tro­ver­sial as­pect of the fund’s re­port re­vealed a huge uptick in im­pair­ments in the fund’s di­rect loans port­fo­lio.

Net im­pair­ments in­creased more than ten­fold to R7.4bn on a loan book of just R40bn.

The large bulk of this in­cluded an ad­di­tional ex­po­sure the fund had to Stein­hoff through Stein­hoff’s nom­i­nated black eco­nomic em­pow­er­ment con­sor­tium led by Jayen­dra Naidoo. The pen­sion fund lent Lan­caster R9.3bn with which to buy Stein­hoff and Pep­kor Hold­ings shares.

Fol­low­ing the col­lapse of the Stein­hoff share price, GEPF was forced to im­pair the loan by R3.33bn, tak­ing to­tal im­pair­ments in Lan­caster to R4.6bn.

In ad­di­tion, the fund im­paired the full value of its loan (R1.058bn) to In­de­pen­dent News and Me­dia, which was used to fa­cil­i­tate the ac­qui­si­tion of the com­pany by Sekun­jalo.

“The im­pair­ment does not re­flect what Sekun­jalo owes us,” said Sit­hole. “They still owe us the orig­i­nal amount they bor­rowed for the trans­ac­tion.

“We are still hold­ing them to the bil­lion they owe us.”

While Lan­caster was not in de­fault with the GEPF over its loan, Sekun­jalo most def­i­nitely is, af­ter hav­ing missed an in­ter­est pay­ment in Au­gust. Sit­hole said the Pub­lic In­vest­ment Cor­po­ra­tion was ne­go­ti­at­ing al­ter­na­tives with Sekun­jalo to re­cover the money.

/Freddy Mavunda

In­vest­ments: The fund’s prin­ci­pal ex­ec­u­tive of­fi­cer Abel Sit­hole says it is look­ing at long-term in­vest­ments.

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