Government pension fund says it is 'over-exposed' to SA economy

Cape Town – The Government Employees Pension Fund (GEPF) is “over-exposed” to the South African economy and this needs to be addressed, says Abel Sithole, the fund’s principal executive officer.

The GEPF has had an exposure of close to R500bn in local bonds issued by government and state-owned entities (SOEs), as at the end of March 2017, Parliament heard on Tuesday.

According to a written reply to questions posed by members of the standing committee on finance, the GEPF said as at the end of March this year, its investments in government bonds amounted to R327bn and R163bn in SOE bonds.

Its exposure in Eskom alone is R84bn.

READ: Eskom single biggest risk to economy, warns Goldman Sachs 

The standing committee on finance on Tuesday invited the GEPF and the Public Investment Corporation (PIC), which manages the GEPF’s assets valued at R1.67trn, to a meeting to answer follow-up questions from members.

The GEPF said the fund – “like any other pension fund in the country” – invests in government and parastatal (SOE) bonds.

Sithole, however, admitted that there is an “over-exposure to the South African economy in whatever form”, which needs to be addressed.

Asset allocation 

The GEPF’s strategic asset allocation as at the end of March this year was as follows:

-       Cash and money markets: 4%

-       Domestic bonds: 34%

-       Domestic property: 6%

-       Domestic equity: 49%

-       Africa equity: 1%

-       Foreign bonds: 1%

-       Foreign equity: 5%.

Downgrade risks 

During question time, Democratic Alliance (DA) spokesperson on finance David Maynier asked the GEPF, given the exposure to government and SOE bonds, if it has any plans to mitigate the risk should South Africa’s sovereign credit rating be downgraded further towards the end of the month.

A significant number of analysts, economists and political commentators are of the view that at least one ratings agency will move to downgrade South Africa’s local currency debt rating to junk status at the next ratings review scheduled for next Friday, November 24.

READ: SA banks prepare for the worst as junk rating looms 

Standard & Poor’s (S&P) and Moody’s currently rate South Africa's local currency debt at one notch above sub-investment grade (junk status), while Fitch downgraded both the local and foreign currency rating to junk status in April this year.

Some asset managers are already restructuring their investment portfolios in anticipation of a further credit ratings downgrade next Friday.

Dan Matjila, PIC CEO, said in response to Maynier's question that the issue of downgrades is “a difficult one”.

“The PIC is finalising our policy on how to approach entities and the minimum governance requirements to invest on behalf of clients,” he responded, but did not elaborate on any specific plans. 

Exit strategy with Independent Media 

During a presentation earlier in the committee meeting, the GEPF pointed out that the Fund’s exposure to unlisted investments amounted to about 3% of total investments.

Fin24 reported last year that the PIC had a R1.275bn investment in the Independent Media Group, which is headed up by businessman and Sekunjalo Investments owner Iqbal Surve.

Its current exposure is just over R1.3bn.

On Tuesday, Matjila said the PIC is “working on an exit strategy” with regard to its investment in the Independent Group. The entity, however, previously defended its investment in Independent Media, saying the media group was the “largest English language newspaper publisher in South Africa that owns some of the most respected and trusted media titles in the country”.

READ: PIC discloses exact exposure in Surve's media group 

The DA's Alf Lees said it seems there is a problem at Independent Media and that the PIC can’t easily get the GEPF money out of the investment. "This would seem to indicate a possible loss to the GEPF either in part or all of it." 

From the information provided by the GEPF it seems that Independent Media is not paying interest on the loans that date back to 2013 and therefore the outstanding balances are growing, Lees said.

"In addition, the value of the shares in Independent Media that the PIC bought in 2013 have reduced from R 167.m to R95.3m," Lees said.

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