PIC plays politics with public money
Nothing happens without approval from ‘Dr Dan’
THE country’s largest investor, the Public Investment Corporation (PIC), is under the spotlight for taking decisions based on political considerations, rather than investment returns for pensioners who entrust it with their money.
But the PIC’s chief investment officer Daniel Matjila defends the fact that the institution, which manages R1.1-trillion on behalf of the Government Employees Pension Fund (GEPF), has ploughed R19-billion into the South African National Roads Agency (Sanral) and supported Dr Iqbal Survé’s buyout of Independent Newspapers.
As anyone who has had any dealings with the PIC will know, the 51-year-old Matjila is the real brains of the organisation. Though the man known simply as Dr Dan supposedly reports to CEO Elias Masilela, nothing happens without his approval, it is said.
Matjila, who attended Oxford and Harvard universities and has a doctorate in mathematics from the University of the Witwatersrand, has been the PIC’s chief investment officer since 2005. It is understood that when former CEO Brian Molefe went to Transnet in 2010, the top job at the PIC was Matjila’s for the asking. He declined because he wanted to concentrate on investing and not, he says, only half-jokingly one suspects, answer awkward questions about corporate governance.
He is not as smooth, enthusiastically engaging or self-confidently articulate as his nominal boss Masilela or John Oliphant, who is CEO of the GEPF, the PIC’s biggest client on whose behalf Matjila makes his investment decisions. But as the power behind the throne, his influence speaks for itself.
One of the biggest unknowns about the PIC is the extent to which, under Matjila’s direction, its investment decisions are based on calculations of returns or political considerations.
Matjila’s answer, when asked about this, is revealing. “I work under mandate from our client, the GEPF. If it happens that the investments are bad and there is a gap, it will be filled by government because it is a defined benefit fund guaranteed by government.”
In other words, if an investment decision is made because of political pressure and the beneficiaries lose money as a result, the government will make good. But should taxpayers pay for those poor decisions?
The R19-billion Sanral investment is, in effect, an investment in e-tolling. While e-tolling is a project dear to the government’s heart for reasons which have yet to emerge, the financial logic is hazy because it will cost nearly as much to collect the tolls as will be collected in toll fees itself.
This leaves large questions over its investment case.
“When Sanral raises a bond they don’t say this bond is for toll roads,” says Matjila. But then he immediately seems to contradict himself when he adds: “Our first question was: what impact will this toll road have on the economy?”
Apart from the risk to his investment by a mass payment boycott by consumers, does he support the business model? Wouldn’t a fuel levy be more financially viable?
Here again, it seems, the government will pay up if it doesn’t work out, so why bother?
“We haven’t, quite frankly, gone into such a detailed interrogation because we’ve got bonds here which are guaranteed by the government,” he says.
Does the same reasoning apply to the PIC’s R500-million (at least) investment for a 25% stake in the Independent Newspaper group now owned by Sekunjalo’s Survé?
Matjila insists there is a good business case for the investment but says that “it was also about how can we bring transformation of the media space. How can we facilitate ownership of a newspaper company by blacks?”
This appears to be something of an overt admission that the institution did this deal for political rather than financial reasons.
Initially, the PIC also tried to block the purchase of Avusa by a consortium led by British-based private equity firm Blackstar, but then reversed its decision.
Many saw the purchase as the last hope of turning around what was clearly an ailing company, and in this light, the PIC’s initial opposition to the deal as a 17% shareholder made little sense if judged on purely investment grounds. So was this also political? “We are never swayed by political considerations,” says Matjila, who then spoils his claim by mentioning considerations that are all about politics rather than business.
“The real issue for us here,” he says, “was, where is it going?”
So the PIC was concerned that its new owners would not be South African?
“Yes. Who was buying it? We said no, because this was a private equity deal, it was being done by a United Kingdom company.”
Matjila claims that “we believe in being an active shareholder. You don’t just sit back and wait for the returns, you’ve got to roll up your sleeves and get involved.” But in the same interview, he admits that the PIC dropped the ball in the construction sector, allowing firms like WBHO, Murray & Roberts and Stefanutti Stocks to collude to fix tenders.
Matjila says the PIC will now “see if we can exercise more influence at board level”.
But its record leaves much to be desired. It points piously to its “guideline” which espouses governance principles for the companies in which it is invested. But it has been criticised in the past for not enforcing these principles.
But Matjila has difficulty conceding the extent to which the PIC as a major shareholder should share responsi- bility for the failure of governance in the construction sector. “We don’t necessarily have our own appointees on the boards,” he says. Is that an excuse? Matjila mouths the usual platitudes about “the important thing now” being “to make sure we don’t allow this to happen again”.
But of course it will happen again and is probably happening as we speak in other companies in which the PIC is invested.
“One of our difficulties,” he says, “is that we are not necessarily on top of all the activities that are happening in different sectors.
“We have boards that appoint management who implement strategy. If we say there are problems, we need to think about how to deal with them. Are the boards working properly or not? In the construction sector, it appears not.”
For all his talk about shareholder activism the PIC has become noticeably quieter than it was under Molefe. Is it now a passive investor?
No, says Matjila. “It’s a different approach we’ve taken in terms of company engagement. We engage with lots of companies behind the scenes.”
They want to keep the media out of it, he admits. And where has that got them? “We will have to strike a balance. We may have to rethink our way of keeping companies informed of our thinking.”
Which may or may not be why he agreed to this interview.