I refer to your recent article by Sarah Rundell, published on February 21, 2018 GEPF shows value of governance.
There are a number of points we would like respond to.
- 1. It should be noted that the GEPF is a defined benefit fund, and so the movement in the value of individual investments does not affect the benefits to members and pensioners. The benefits to which members and pensioners are entitled, are safe and guaranteed by the Government of South Africa.
2. The bridging finance granted to Eskom by the PIC is a short term money market instrument which is to be repaid in 30 days and it is fully backed by a government guarantee. It is not a bail out, as stated in the article. The bridging facility is not a bond, and it falls within the cash and money market instruments (short-term fixed interest) category of the PIC’s investment mandate.
3. The PIC conducted a due diligence process prior to approving the loan and acted within its mandate to provide the bridging finance facility of R5 billion to Eskom. The PIC certainly did not breach the GEPF’s mandate as stated in the article.
- 4. The potential investment returns for the GEPF in this transaction are above the benchmark return prescribed by the Fund’s investment mandate.
- 5. The GEPF’s strategic asset allocation provides for an allocation of 4% of the total portfolio to cash and money market instruments, within a range of 0-8%. This allocation largely serves to accommodate the Fund’s cash flow needs (to pay benefits, administration and asset management fees and other operational disbursements) and as a repository of income (dividends, interest, redemptions, etc.) until decisions are made on how such cash should be invested. The money is deposited into short-term fixed interest instruments; bank deposits and similar instruments issued in the money markets by various issuers, of which Eskom is one.
- 6. This means that Eskom was already in the universe of the GEPF/PIC cash and money market instrument issuers.
- 7. It would not have been prudent for the PIC not to accept an obviously commercially attractive opportunity. Importantly, this investment had the potential to avert a further downgrade of Eskom’s credit, thus protecting the rest of the Fund’s domestic portfolio from the adverse effects of such a downgrade. A downgrade would not only affect the bills and bonds issued by Eskom, but it could also trigger the downgrade of other State Owned Enterprises, thereby impacting the Fund’s other investments.
The GEPF would like to assure your readers that it is guided and operates within the Government Employee Pension (GEP) Law and Rules which define precisely how the Fund should be governed and how it should administer pension and other related benefits to members and pensioners.
All investment decisions are taken in the best interest of members, pensioners and beneficiaries and the PIC always acts in line with the GEPF’s mandate requirements and the investment risk parameters stipulated by the mandate.