CEO Abel Sithole
The PIC has no personal gripes against any entity it invests in
“Just the place for a Snark! I have said it thrice: What I tell you three times is true.” — The Hunting of the Snark by Lewis Carroll
Allegations have been made that the Public Investment Corporation (PIC) has been unfair in its dealings with companies it invests in. At the same time, the PIC is enjoined to push for a progressive and transformative agenda, and invest more than the purported current 1% in black business.
The PIC treats all investments fairly, invests for financial returns and impact in line with its clients’ socioeconomic development and transformation mandates.
While the PIC has a significant asset base, the assets under management (AuM) are spoken for. The PIC invests on behalf of clients whose beneficiaries are the most vulnerable. These beneficiaries look to the PIC’s clients when they are at their most vulnerable. This applies to the GEPF (Government Employees Pension Fund) when its members are no longer able to earn an income because of age, loss of employment (through retrenchment or discharge), ill-health or death; to the Unemployment Insurance Fund (UIF) when contributors’ employments are terminated by the employer; and to the Compensation Fund (CF) for disability, illness and death from occupational injuries and diseases.
These assets are actual contributions accumulated over many years. The paramount purpose is to invest to safeguard and grow the assets. No-one has a bigger claim on the assets than they do.
The government, as guarantor of the claims, funded by taxpayers, has an overarching interest in the security and growth of these assets.
To secure and grow the assets, the PIC invests in investment markets. Investment markets are not specific to a country. The South African investment market takes its character from being in SA with its past, present and future realities. However, the PIC also operates in any other country.
These markets are fully integrated, such that no market can sustainably operate in isolation. There is no room for investment market exceptionalism. There are no market rules that apply only in SA, nor can SA make and successfully follow its own rules in any fundamental way. This is true for all market players, including the PIC.
Investment markets comprise asset classes with different rights and obligations, different risk return profiles, in different jurisdictions. They are either traded in a listed exchange or directly.
Listed or unlisted, investments are investments, but they are fundamentally different.
How they are owned, how they behave in the marketplace, how they are traded, how they are regulated are not the same. Treating them as homogenous and making direct comparisons is disingenuous and dangerous.
Equating the reduction in the value of a listed investment due to a depreciation in price and directly comparing it with reduction in the value of an unlisted investment due to a failure to run the underlying entities and honour agreements is wrong. This is so despite the fact that the depreciation in price does in instances lead to realised losses, as do defaults.
An investment in a listed Steinhoff is different from an unlisted Independent News Media SA and the initial public offering of Ayo Technology.
Buying a share in Steinhoff has different rights and obligations, terms and conditions to funding Independent Media and Ayo. Each has different characteristics.
Listed investments, in smaller portions of the entity, such as shares, can be bought and sold quickly and easily. They are traded in an environment with higher levels of pricing transparency because of higher levels of historical and current information and scrutiny. They are said to be liquid, with many buyers and sellers.
Unlisted investments are undivided or significant portions of entities, e.g. half of a company or more. This makes them illiquid, needing buyers with deep pockets and long horizons. Pricing is specific to the asset and the relevant information is not readily available, giving sellers a disproportionate advantage over buyers.
This is the reason why investors, especially those acting in fiduciary capacities, favour listed investments over unlisted investments.
Any demographic biases inherent in listed versus unlisted investments are incidental. They are a historical legacy, in the context of a country with a history of racial divisions and privileges.
Unlisted investments are used to overcome this legacy. The PIC will invest for the improvement, addition and creation of new productive capacity. This is the only way it can meet its mandate in the interest of its clients, their beneficiaries and other stakeholders. Unlisted investments are the only practical way the economy can grow, producing products and services, creating jobs, reducing poverty, and reducing inequality. However, the PIC cannot set up and run these businesses. It achieves this through partnerships.
Labelling the listed assets as belonging to a specific demographic belies the reality of their beneficial ownership. Among the largest number of owners of listed assets are members of retirement funds and unit trust holders. This does not negate the reality of historical patterns of asset ownership and control.
Of the R2.3-trillion the PIC manages, R1.1trillion (47% of AuM) is invested in domestic listed equities/shares in companies that are producers and providers of products and services, employers, and taxpayers.
About R754bn (32% of AuM) is invested predominantly in the bonds issued by the government and state-owned enterprises that provide crucial economic, social and consumption services and infrastructure.
About R82bn is invested in properties in which the majority of South Africans shop and or work. The PIC owns half the V&A Waterfront in Cape Town.
The PIC has no intention of providing funding so that it can later litigate when there is failure and default. It is taxing, vexing and costly for the PIC to enforce its rights.
The PIC would not be able to secure and grow the assets it is entrusted with if it did not invest in productive, profitable and sustainable business, especially black-owned ones, applying requisite rigour and stringent due diligence across the board.
The PIC never forces anyone to seek its funding, nor does it coerce them to accept its terms and conditions. The transformation agenda is incorporated into its normal investment processes.
It does not have any personal gripes against any individual and or any entity that it invests in.
However, it will not hesitate to protect its investments by insisting that those it has funded meet their agreed obligations, to secure the assets and the best interests of its clients and their beneficiaries.