One “very positive spin-off” from the recent blowout at the Public Investment Corporation (PIC) is the recognition that its leadership and governance failures affect the entire economy and not just 1.7-million state employees and pensioners, says Zirk Gous, spokesperson for the Association for Monitoring & Advocacy of Government Pensions (AMAGP).
“The recognition that leadership and governance challenges at the PIC affect the country’s fiscus and financial future is a massive move from the president’s office, which I believe was driven by the Treasury,” he says.
Finance minister Enoch Godongwana warned, after the resignation of eight board members and PIC chair David Masondo, and in the wake of the suspension of CEO Patrick Dlamini, that instability at the PIC, which manages R3.7-trillion in assets mainly for the Government Employees Pension Fund (GEPF), poses a serious systemic risk to the economy.
Unfortunately, says Gous, this hasn’t translated into a recognition of the need to end the “total political control” of both the PIC and GEPF, which has been used as a “vehicle” for politically motivated and mostly disastrous investments.
A notorious example is poultry operator Daybreak Foods, which the PIC purchased in 2015 on behalf of the GEPF for R1.2bn. Poor decisions, zero accountability and widespread incompetence led to multiple liquidation attempts before Daybreak went into business rescue last year.
A substantial portion of state pensioners’ money is channelled into unlisted, almost exclusively broad-based BEE (BBBEE) entities from the PIC’s Isibaya Fund, most of them politically connected and financially unstable, says Gous.
“Isibaya is simply a direct bank for politically connected people to get money from.”
He cites a report to parliament’s standing committee on finance in 2016 showing that R44bn had by then been invested in politically aligned projects with a 44% failure rate.
“Between 2015 and today total money written off as impairments has reached R52bn, with R31bn lost specifically through Isibaya investments,” he says.
“If you invest any money in any private investment company, a 1% failure rate can be acceptable. What they are writing off here is 3%. That 3% is R33bn.”
The government regards it as public money which it has a right to invest in projects that suit its political interests, he says.
“This is a basic mistake. It is not public money. It belongs to the members of the pension fund, not to the government.”
Busting the myths
Another misconception is that because the GEPF is a defined-benefit fund, government pensioners don’t suffer from the PIC’s disastrous investment losses, it’s taxpayers who take the knock.
The counter-argument, says Gous, is that over time, investments, particularly those linked to the Isibaya Fund, have built up losses of about R40bn. And linked to that is the opportunity cost in terms of interest those losses could have earned.
“Which brings us to the annual increase in pensions afforded to pensioners. The buying power of their pension is half what it was 20 years ago, resulting in pensioners becoming progressively poorer.
“State employees who resigned from 2011 onwards have lost individually since resignation anything between R600,000 and R1.3m in the value of the funds being paid out to them, according to an actuarial valuation by the GEPF.”
Government pensioners had been raising their concerns about “reckless, politically motivated” investments with ministers, MPs and the board of trustees of the GEPF long before the Mpati commission of inquiry into the PIC confirmed their worst fears in 2020.
The lack of an adequate response prompted them to form AMAGP in 2016 to lobby for the sustainability of the GEPF, which they felt was being endangered by political investments.
The then principal executive officer of the GEPF, Abel Sithole, responded to their detailed and documented concerns with a “lecture” on how well the investments were performing, and said that there was nothing to be concerned about.
But a GEPF surplus of R9.1bn in 2006 had by 2018 become a R583bn deficit.
“As from 2018 up to now, the losses reported in impairments are over R35bn,” says Gous. “If those funds had been available to earn interest and add value to the assets of the GEPF, in other words the opportunity cost, if you add that it runs into R50bn.”
He says there’s nothing in the GEPF law that stipulates it cannot transfer management of its R2.3-trillion fund from the PIC to established asset fund managers with proven track records.
“The PIC outsources some investments to private firms, but in law they don’t have to use the PIC at all.”
So given the PIC’s disastrous record, why do they?
The answer is in a section of the GEPF law which states that the investment mandate of the GEPF must be drafted by the trustees in consultation with the minister of finance. Legally interpreted this means the minister of finance has a veto right over that mandate.
This is why its trillions are likely to remain in the hands of the PIC under the political control of the minister, with billions being invested and lost in unlisted BBBEE ventures, says Gous.
“The area where the biggest problems exist is in the PIC’s Isibaya Fund. Over a period of 10 years its return on investment is 2%. Anybody with a financial background will say that this indicates a serious problem.”
This problem was ignored for 16 years before being exposed by the Mpati commission. Since then more light has been shone on the problem, but it has not been resolved.
In law the GEPF doesn’t have to pursue investments in the best interests of its members as stipulated in the Pension Funds Act (PFA), says Gous. But there is a strong legal precedent that is recognised irrespective of the legislation, and that is the fiduciary duty to act at all times in the best interests of clients.
Neither the GEPF nor the PIC has been challenged on that, he says, though it is a well-established legal principle.
“It is very strange that this clause has not been incorporated into the GEPF law while it is incorporated in the PFA which regulates private pension funds.”
Entrenched politics
The Mpati report, published in 2020, recommended that neither the chair of the PIC nor the directors of the board should be political appointments. It recommended that those posts be advertised and appointed on merit, and that all investments be made in the best interests of the fund and not for political reasons.
The PIC Act was amended in 2019 but only promulgated in 2022. The act de facto entrenched the deputy minister of finance as PIC chair (the legislation allows the finance minister to appoint either his deputy or another deputy minister in the economic cluster). Before that there was nothing in law to substantiate that, says Gous, it was simply a practice.
“So the ruling party at that point in time knew about the Mpati recommendations and changed the law to legitimise political control well after the Mpati report recommending the opposite was published.”
The Conduct of Financial Institutions Bill makes the GEPF subject to “very critical safeguarding mechanisms found in the PFA, such as all investments must be made in the best interests of the fund and all key personnel should adhere to the fit and proper test,” says Gous.
It’s been on the table for evaluation and consideration since 2020, but since early 2025 it has picked up speed.
“This is not to say it will become an act of parliament, though the fact that the finance minister and the Treasury are now driving it is a positive development. If the bill is realised it will change the whole statutory environment regulating the GEPF,” says Gous.
His praise for the minister is tempered by reports that the person he has appointed to replace Masondo as PIC chair, deputy minister in the presidency Seiso Mohai, was instrumental in amending the PIC Act after the Mpati commission report.
“It is extremely strange that the person who amended the act to legitimise political control of the PIC is now the chair of the board of directors.”
Asked how the PIC looks to him now, Gous refers to a recent legal recommendation that disciplinary action be taken against the PIC officials involved in its dubious R411m payout to BEE company Acapulco following an equally dubious valuation of its shares in Lanseria Airport.
“There’s been a deafening silence on this recommendation, which sends a message that the PIC is still not very strong on consequence management.”
