State pension fund may expand foreign portfolio
GEPF’s principal executive officer says diversifying ‘one of the most patriotic things we can do’
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.
Investments: The fund’s principal executive officer Abel Sithole says it is looking at long-term investments.