Local focus to stay, state pension fund says

Chair says long-term investment strategy continues to bear fruit

● The Government Employees Pension Fund (GEPF), which manages R2.29-trillion in pensions and other benefits on behalf of public servants, has defended its asset allocation strategy which predominantly exposes it to the domestic market.

Speaking to Business Times after a presentation of the GEPF’s 2022 integrated annual report this week, principal executive officer Musa Mabesa said the strategy had worked at absorbing economic shocks and had proven resilient in the aftermath of the global financial crisis and the pandemic.

“I know there are calls for us to go into foreign investments, but we do not panic with our strategy. The home bias worked for us. We saw the global economic crisis. Markets crashed globally but South Africa and the fund survived that. We saw a dip in our assets, but we actually survived it because of the bias towards South Africa and the way we split the asset allocation,” he said.

In line with its mandate to make a “meaningful contribution” to the domestic economy, 53% of the GEPF’s asset allocation is in domestic equity, and domestic bonds account for 30%.

International assets, domestic property and the rest of Africa make up 9%, 4% and 2% of the portfolio respectively, while alternative assets comprise another 2%.

Mabesa agreed there was a need for the fund to expand its offshore assets which are at just under 10%, having previously indicated its maximum offshore allocation was 15%.

“We should be doing more, but 10% of R2.3-trillion is R230bn, which is a lot. Moving R230bn out of South Africa has a big effect on the South African economy. We must be mindful of that.”

He said the fund settles its liabilities, which are mainly retirement benefits, monthly in rands.

“If the bulk of our money is sitting offshore, to translate that on a monthly basis to have enough money to pay our benefits is going to be a challenge. We will always have the home bias because our liabilities are rand-based,” he said.

On mooted pension reforms, he said the GEPF as a defined-benefit scheme was not against a two-pot retirement system as it believed in preservation.

“The intention of the defined-benefit scheme and the message coming from the GEPF is that people should be encouraged to remain in the fund until retirement. A two-pot [system] ensures compulsory preservation, and if people have to withdraw the flexible portion, then they can but should not be encouraged to. That is our position,” Mabesa added.

Regulations gazetted by the National Treasury aim to introduce a two-pot system, allowing members of retirement funds to preserve two-thirds of their savings, while one-third will sit in a different pot and can be accessed once a year.

The regulations won’t, however, apply retrospectively. The GEPF’s market value increased by 9.6% in 2022 to R2.29-trillion from R2.09-trillion in 2021, mainly because of the economic recovery post-Covid.

The GEPF attained higher market value despite economic headwinds including an unreliable electricity supply, high inflation and lower than expected economic growth.

GEPF chair Dondo Mogajane, a former Treasury director-general, said South Africa also grappled with insufficient job creation, high unemployment among the youth and rising poverty levels coupled with the civil unrest last year and the effect of Covid on growth.

He said the GEPF had a role to play by using the funds at its disposal to act as a tool for transforming the economy.

“The GEPF cannot remain silent when the companies we invest in or allocate funding to do not take the need for an inclusive economy seriously. The fund will not be used as a kitty to fund unstainable

We saw the global economic crisis. Markets crashed globally but South Africa and the fund survived that

Musa Mabesa

GEPF principal executive officer

investments; but equally so we cannot do nothing when those we invest in don’t take the transformation of our country and its economy seriously,” said Mogajane.

He said there was a correlation between the GEPF’s performance and that of the South African economy. “A better-performing economy leads to a better performing GEPF.

Despite the fund operating in this tough economic environment, it achieved 9.6% year-on-year growth, closing with a market value of R2.3-trillion.”

According to Mogajane, the continued positive performance of the fund illustrates that the fund’s long-term investment strategy continues to bear fruit.

Remarking on the fund losing billions when Steinhoff collapsed due to financial misconduct, GEPF’s head of investments Sifiso Sibiya said what happened was unfortunate and was being delt with by the law.