Investments of GEPF risky?

The PIC has agreed on strategic objectives for the Government Employees Pension Fund, which it manages.

The Government Employees Pension Fund (GEPF) and its assets are managed by the Public Investment Corporation (PIC). The board agreed the GEPF would focus on the following strategic objectives for the 2017/18 financial year: improving benefits administration, member and beneficiary communication and education, investment monitoring, stakeholder relations and risk management architecture.

The sixth objective should be to make financial statements more transparent. No details are provided of R12.2 billion direct loans to unlisted entities, R11.1 billion equity investments in unlisted entities, or of investment debtors of R2.7 billion under accounts receivable.

At March 2017, the number of active members of the fund was 1 269 948 and there were 423 130 pensioners and beneficiaries.

There is much lip service to assuring GEPF payments to beneficiaries are government guaranteed. Given all SA’s current economic issues, these guarantees may in time be hoist by their own petard.

The actuarial present value of promised retirement and other benefits for contributing members is R1 trillion.

Fund valuator Howard Buck is satisfied the net assets available for benefits of R1.6 trillion is enough to meet the fund’s future liabilities. But has this value been eroded by unsound investments?

The GEPF holds R85.9 billion of Eskom bills and bonds; an additional R9.4 billion was invested in 2017. These bonds are government guaranteed. Eskom’s faced with mounting problems; is there a risk of the GEPF having to increase its bond exposure to Eskom?

The GEPF has invested R46 billion in unlisted entities and R40 billion in direct loans to unlisted entities.

Recently, the PIC had to submit details of investments in unlisted investments to parliament, contained in the Isibaya Investment Schedule as at March 31, 2017.

The Isibaya Fund is a division of the PIC, which provides finance for projects supporting long-term economic, social, and environmental goals. R1.691 trillion (87.72%) of the PIC’s funds represent assets managed on behalf of the GEPF. Hence, one can assume 87.72% of the Isibaya Fund would belong to the GEPF.

Note that ‘investments’ include direct loans. An investment is a process of investing money for profit: the higher the risk, the higher the profit. So should a pension fund be investing in loans to unlisted companies?

The Isibaya Investment Schedule is confusing in that debt has been revalued at ‘market value’. The only ‘increase in market value’ can be attributable to interest owing on the debt. The GEPF should provide more clarity on the following:

1. Where the market value of a debtor’s loan is revalued, does the difference represent interest not paid? If not, on what basis can a debtor’s loan be revalued?

2. Does the GEPF insist on security on loans granted to entities, individuals and funds?

3. What valuation methodology is used to value an equity investment in an unlisted entity?

4. Short-term investments included under cash and cash-equivalents are R27.7 billion. Does it include maturing bonds in state-owned entities or short-term loans granted to unlisted entities?

I believe the current investments should be scrutinised, and future investment decisions should be more transparent.