How ANC pension proposal can work
Projects have to be investible to lure cash, says Eskom fund CEO
● Pension funds can and should invest more in infrastructure and development — but investible projects, not changes to the pension fund rules, are what’s needed to make them do it, says the CEO of one of SA’s largest pension funds.
“Going into the future we will invest more in infrastructure and real assets. It’s the right thing to do for the country and for our members,” said Linda Mateza, the CEO of the Eskom Pension and Provident Fund (EPPF), which, with more than R140bn under management, is SA’s second-largest pension fund after the Government Employees Pension Fund.
But Mateza added that “the challenge has been to find investible projects that offer good enough returns. We can only step in where government and development finance institutions have provided sufficient incentives for us to invest in line with our mandate. There is a lot of work to be done in creating those opportunities.”
Her comments come as the government promises to partner with the private sector on an infrastructure investment drive, and as the ruling party continues to call for changes to regulation 28 of the Pension Funds Act to drive greater investment in infrastructure.
ANC economic policy head Enoch Godongwana was reported in Business Day this week as saying this was an alternative to the party’s 2017 conference proposal to force pension funds to invest part of their funds in prescribed assets (such as government or state-owned enterprise bonds).
However, Mateza said in an interview that regulation 28 allowed pension funds to invest in infrastructure currently. “We haven’t done nearly enough as pension funds, partly because of a lack of investment opportunities. There is also a fear of infrastructure projects, but if we can be assured of a solid investment case, clear development outcomes and transparent and good governance, pension funds will be in there,” she said.
The EPPF had allocated R8bn for investment in (unlisted) real assets and development projects, over and above its allocation to private equity, but had so far invested only about R2bn of this, mainly in affordable schooling and health-care projects, and was looking to do more, Mateza said.
The fund, which turns 70 this year, has about 80,000 members, of which 33,000 are pensioners. The market crash in late March saw its assets under management dive from more than R150bn before the Covid crisis to R114bn, but this has since recovered to R148bn, with the fund’s well-diversified portfolio doing well for it — 30% of its assets are offshore, the maximum allowed under the pension fund regulations.
That helped to enable it earlier this month to pay a total of R104m in special bonuses to all EPPF pensioners, to help tide them over the hardships of the Covid crisis.
The EPPF is one of the last of the old-style defined benefit funds, which guarantee members a pension linked to final salary at retirement, and as such has to be careful about its returns — especially given Eskom’s parlous financial state.
“Being a defined benefit fund we keep a close eye on the funding level and we do an actuarial valuation every year to ensure that at all times our funding level exceeds 100% — because should we find ourselves in deficit we would not be able to rely on protection from our principal employer,” said Mateza.
Though absolute returns have been low in recent years, the fund’s performance is consistently in the top quartile relative to pension funds with similar benchmarks in the Alexander Forbes Large Manager watch.
At the same time, the EPPF has been a trailblazer, driving transformation in the industry over the past decade, said Mateza. It outsources the management of two-thirds of its portfolio to external asset managers and of this, nearly 40% is managed by blackowned and managed asset managers.
Its BEE targets also apply to the stockbrokers it uses, and it has played a critical role in developing new black asset managers.
Given its role in the industry, and the fact that all the members of its executive committee are black, and half are women, Mateza is somewhat puzzled by the controversy around the recent appointment of former Eskom treasurer and director of companies Caroline Henry as the fund’s new chair.
“Caroline comes with great experience; I rate her very highly and she will be good for the stewardship of the EPPF,” she said. “I don’t think our transformation credentials are in question at all.”