GEPF asset portfolio now valued at R2.3trn

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JIMMY MOYAHA: We’re taking a look at the GEPF, the Government Employees Pension Fund. That is the pension scheme that manages all of the pension funds for government employees. They have an asset manager in the form of the Public Investment Corporation, which controls 82% of that investment– or of that portfolio that is sitting now at R2.3 trillion.

I’m joined on the line by the principal executive officer at the Government Employees Pension Fund, Musa Mabesa, to take a look at the company’s performance over the last 12 months. Musa, good evening. Thanks so much for taking the time.

[There has been] a marginal increase in terms of the portfolio value. ‘Marginal’ is, of course, relative – a 1.2% increase for some might be a non-existent increase, but if we translate that, that’s a R27 billion increase for the GEPF. On top of that, it achieved a return on investment of 3.5%. Clearly, market conditions were tighter than expected.

MUSA MABESA: Good evening Jimmy, and thanks for having me. Yes indeed, Jimmy, a 1.2% increase in our value is marginal, but under the difficult economic circumstances over the last 12 months to March 2023, we welcome that everyone understands how difficult it has been both for South Africa and globally, so we do welcome that – especially the numbers.

You expressed it in rand terms; that increase of R27.1 billion is significant for us under the circumstances.

JIMMY MOYAHA: Musa, let’s look at some of the outflows. There were obviously outflows for various reasons and, despite these outflows, there was still a net cash flow positive in that the inflows outweighed these outflows.

MUSA MABESA: Yes. Jimmy, the primary object of the fund is to preserve the retirement savings of our members, so paying benefits to pensioners, spouses as well as their beneficiaries is the primary objective.

We pay that comfortably with the returns that we earn on the savings that they’ve maintained with us – and we are able to do that comfortably with the interest and dividends that we’ve earned on the investments that we hold. So we remain cash-positive when you look at those variables.

Contributions that we receive from active members are invested for the maintenance of the future savings. So we are comfortable and we remain cash-positive, as indicated.

JIMMY MOYAHA: Let’s look at some of the movements. I know that with the PIC being the custodian or the asset manager for these funds, a lot of the decisions don’t necessarily sit with the GEPF. In fact, 82% of them sit with the PIC. I want to look at just your thoughts around the repositioning of these investments.

Read: PIC defends its annual growth in AuM of just 2%

I had a look at the annual report that came out from your office and the reduction in exposure to Sibanye[-Stillwater]. You liquidated about R30 billion there and the PIC elected to take a 15% stake in AngloGold [Ashanti], as well as a 14% shareholding of Gold Fields. That’s a very strong play into the gold space. Do you think that concentration leaves the GEPF a bit exposed in terms of commodities pricing at the moment?

MUSA MABESA: Look, Jimmy, the GEPF and the PIC invest on our behalf through a mandate. The GPF is a long-term investor and the PIC will invest on our behalf with the understanding that we are long-dated investors.

So any movement in market prices and commodity prices for that matter are not really an impact for us because those volatile movements will self-correct over time.

So decisions that the PIC makes obviously are based on fundamentals in the market, and they will apply their minds and use the research that they conduct to make changes to the portfolio, whether they are rebalancing and so on.

So the decisions that they make based on decisions that they consider carefully are within their purview, and they motivate those and justify the performance to us, and we’ll assess them based on their performance. So we’ll let them do that within the mandate and report [on] performance – and they’ve done well for us over the years based on the strategies that they apply.

JIMMY MOYAHA: Speaking of the mandate and the revision of that mandate with the PIC, that revision took place as you came in as the principal executive officer of the GEPF. That was obviously with the understanding that there needs to be a greater synergy and harmony between the two organisations, and accountability for some of the investments. Some of the investments, the likes of Steinhoff and Ayo Technology haven’t necessarily been to the benefit or in the best interests of the GEPF.

Read: GEPF freezes PIC’s R70bn mandate [Nov 2021]

I want to look at the revision of that mandate, [which] officially kicked in or became effective from April 1, 2022. So this would effectively be the first reporting period or the first set of financial results since that revised mandate came into effect. Is there a change that the GEPF has been seeing since rolling out that new mandate with the PIC?

MUSA MABESA: Yes, Jimmy, certainly there’s been a change from the PIC’s operations as well. You’d recall that Mpati Commission of Inquiry made certain recommendations that the GPF needed to implement.

Read: GEPF implements a number of Mpati Commission recommendations

One of those recommendations was a revision of the mandate we had with the PIC. That coincided with the work that the GEPF had already started doing in devising what was then in place as the mandate with the PIC.

That revision that we put in place was to strengthen the governance that we put in place, the oversight mechanisms with the PIC, as well as tightening some of the requirements and the performance expectations of the PIC.



And we’ve seen the PIC’s changes in the way they operate. They’ve augmented their capacity and bringing in the right skills that will assist in managing the assets of the GEPF. So we have seen it early in the new mandate. It’s been only a year, but we’ve seen strides towards complying with the new mandate, and we’ll be assessing that over the next couple of years to see the achievement of our objective.

Read: GEPF signs new unlisted Africa investment mandate with PIC

JIMMY MOYAHA: At this stage, Musa, are there concerns around the percentage of allocation that sits with the PIC? For them to control 82% of the portfolio is quite a significant number, and, as you said, we are still in the very early stages of the new mandate and the amended mandate. But is it something that is up for consideration at the GEPF to say that perhaps we should look at diversity in terms of asset managers?

MUSA MABESA: Not at all, Jimmy. I can state that we are not considering diversifying managers specifically. So the PIC remains our manager of choice. The numbers that you and I spoke about at the beginning of our dialogue speak to the PIC’s performance. Investment is not an exact science. The PIC has delivered for us over the years.

Last year we had a return in excess of 11%, and that was largely driven by what the PIC has been doing in implementing the mandate that we gave to them. So they remain our investment manager of choice.

The PIC has appointed other managers to assist in the management of our funds, so they’re not doing it alone; but they remain the main manager on our behalf, and they appoint other managers to assist in the function. So there is no consideration to diversify the management of our mandate.

JIMMY MOYAHA: Musa, can I ask if you are concerned about the fiscal situation in South Africa?

The reason I ask this is the government’s – or the GEPF’s – exposure towards the government in the form of direct exposure is to the tune of some R678 billion of the R2.3 trillion of the portfolios.

About 29.5% is directly exposed to whether it’s parastatals or whether it’s direct government bonds.

Are you at this stage concerned as an investor – not looking at who is managing the money or anything of the sort, but as an investor to say the government needs to sort out its fiscal position because 30% of your money is sitting with them?

MUSA MABESA: Jimmy, to be specific, you’re referring to the R557 billion in government bonds as well as the R122 billion in parastatal bonds.

Look, we are watching those numbers very carefully, but we remain confident in the South African economy. There haven’t been any defaults in these bond holdings; and, to be specific, in the financial year under review these bonds have actually contributed significantly to the positive performance that we’ve seen.

So we do look at the government’s performance and the fiscal situation, but we are not too concerned about the situation. We’ll watch it closely, but we are confident that these issues will be overcome.

One thing I need to impress upon you, Jimmy, is that the liabilities of the GEPF are rand-based in South Africa. So we need to be mindful of the importance of the GEPF’s continued existence and investment in South Africa, and the confidence that we have to have in South Africa is important to us as well.

JIMMY MOYAHA: It’s interesting that you say that, Musa, because I had a look at the annual report and you’ve increased your offshore investments in terms of collective investment schemes – obviously that increases your offshore exposure. Is that as a hedging strategy? Again, I know you can’t comment on some of the investment decisions that may have been made by your asset managers – but in the overall focus, despite the increase in the offshore portfolio, is South Africa still the preferred destination? Is that correct?

MUSA MABESA: Yes, Jimmy. Part of our diversification strategy is to have some sort of offshore exposure. We are not looking to have an offshore exposure of up to 45% as other retirement funds are allowed under Regulation 28, which we currently don’t fall under.

But we ideally should have around 15% of our AUM [assets under management] invested offshore. So we’ll gradually work towards that 15%.

At the moment we are circa 10% invested outside South Africa, and we will move towards that 15% target that we currently have in terms of our strategic asset allocation.

JIMMY MOYAHA: Well, we hope that the business continues to do well, the portfolio continues to grow, and that all of the government employees that have entrusted you with their hard-earned monies see the benefits of that when it is time to retire. Thanks so much.

Musa Mabesa, the principal executive officer at the Government Employees Pension Fund, has been giving us a sense of the company’s full-year performance, or the GEPF’s full-year performance, their asset growth, their areas of strength, and what it is they’re going to be focusing on going forward.



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