With the volatile economic conditions, the Government Employees’ Pension Fund (GEPF) is looking into diversifying its portfolio by investing more in unlisted companies and entities.
The GEPF is also considering increasing offshore exposure to lessen the impact of the credit downgrade. This model is geared towards developmental investments in sectors such as economic infrastructure, environmental sustainability, social infrastructure, priority sectors and SMMEs, which have the potential to grow the economy and create jobs.
“Any constraints on South Africa’s economic growth and size would have a similar impact on the fund. Pension funds are the biggest investor group in South Africa and, along with other institutional investors, we are fully aware that investment values are impacted by the seriousness with which companies regard environmental, social and governance issues,” GEPF Principal Executive Officer, Abel Sithole, said on Tuesday.
As it is, the GEPF’s investment strategy uses a liability-driven approach, based on asset liability modelling, which takes into consideration expected future benefit payments, the actuarial position, other long-term objectives, as well as the risk to the overall solvency of the fund.
With this in mind, Sithole said they think of investments in the long-term and how they will impact future generations.
“There is a need to invest in the unlisted space because the GEPF's performance is related to the economy's performance, as these initiatives are aimed at job creation, enterprise development and growing the economy,” said Sithole, who was joined by the Public Investment Corporation (PIC) CEO Dan Matjila.
Currently, about R46 billion of GEPFs assets are invested in unlisted equities.
GEFP is Africa’s largest pension fund, with more than 1.2 million active members, in excess of 400 000 pensioners and beneficiaries.
With its investment manager being the PIC, the market value of the fund reached R1.67 trillion, which is an increase of 2.6% on the value at 31 March 2016.
In the last financial year, the fund overproduced a return of 4.3%, outperforming its strategic benchmark return of 3.7%.
This investment performance was achieved in a period of low economic growth, volatile financial markets, and with inflation (at 6.3% year-on-year) slightly higher than the South African Reserve Bank’s Consumer Price Index (CPI) target range of 3% to 6%.
Sithole said the investment returns below the inflation rate could impact negatively on the fund’s objective of granting full inflationary increases to pensioners, hence they are looking at diversifying the portfolio.
Sithole emphasised that diversifying the portfolio would be in line with funds’ responsible investment policy while the governance of the entities it invests in would be looked at.
“The GEPF believes that integrating environmental, social and governance factors that play a role in investment decisions promote the long-term value of the fund’s investments. These are also in the interest of its members and beneficiaries.”
Pension benefit guaranteed
Sithole clarified the issue of asset ownership at the GEPF.
“It’s not government, it’s not the PIC. It’s actually the assets that the GEPF owns or the members … of the GEPF. It’s not owned by the PIC. I think it’s important to clarify that,” said Sithole.
The PIC is simply mandated to make investments in both listed and unlisted assets, according to its investment and governance processes, within the parameters of the GEPF mandate. No matter how the investment performs, being a defined benefit fund, the GEPF pension benefit is guaranteed by government to State employees and pensioners.
Matjila said that governance and social environmental issues are incorporated in investments, as they have done so in the past.
“The unlisted investments are necessary for development in energy, infrastructure, agriculture, to drive economic growth.”
Matjila assured that client monies in GEPF are safe. He also reiterated that the investment mandate of the PIC comes from its clients, not National Treasury.
“There is little influence by National Treasury in the investment by the PIC. The [Finance] Minister appoints the board, which needs to be fit and proper to conduct core activities of the PIC.” - SAnews.gov.za
