PIC CEO Abel Sithole said the entity's strategy of being a part investor and also making onbvestments on the strength of market sentiment had been part of the undoing.
Image: Oupa Mokoena/Independent Newspapers
Banele Ginidza
The Public Investment Corporation's (PIC) unlisted portfolio came up for scrutiny without wholly satisfying the Standing Committee on Public Accounts (Scopa), which has scheduled another date for a full report on entities that had raised red flags with the Auditor General (AG).
This is as the PIC appeared before Scopa on Wednesday to report mainly on the investments the entity has made on behalf of the Government Employees Pensions Fund (GEPF) and the Compensation Fund to address the ongoing financial and governance failures within the Compensation Fund and the Unemployment Insurance Fund (UIF).
Scopa followed up on the state of the Compensation Fund, which has received the same audit opinions for five consecutive years, with little to no improvement on the issues previously raised by the Auditor-General.
It has incurred more than 97.6% of irregular expenditure amounting to R467.7 million that has not been addressed, while 98% of fruitless and wasteful expenditure, totalling R558 million, remained unresolved.
Scopa has taken up findings of the AG, which highlighted systemic deficiencies that had severely compromised the ability of these entities to fulfil their mandates.
The discussion focused on the urgent need for structural reforms, accountability measures, and improved financial oversight.
The AG recommended immediate interventions, including strengthening internal controls, expediting investigations into irregular expenditure, and ensuring strict adherence to financial management legislation.
The committee resolved to work with the Portfolio Committee on Employment and Labour to accelerate reforms, to closely monitor the Fund’s financial decisions, and consider issuing certificates of debt under the Public Finance Management Act to enforce accountability.
The PIC CEO, Abel Sithole, outlined how the entity had improved its controls and monitoring systems, explaining that a lot of underperforming investments were prior to the entity implementing recommendations of the Mpati Commission of Inquiry, amongst which was the establishment of a credit committee.
Sithole said the entity's strategy of being a part investor and also making onbvestments on the strength of market sentiment had been part of the undoing.
"The credit committee came out of Mpati Commission, some of the difficulties come from that it was a new environment we were still learning," Sithole said.
"The benefits of the Commission recommendations were that they were able to then set up a credit committee to assess credit worthiness to ensure taking appropriate risk and risk mitigants."
Thabiso Mashikara, acting head of unlisted investments at the PIC, told the committee that the portfolio had at some stage been forced to underperform to comply with South African Reserve Bank (Sarb) requirements.
"Relative to benchmarks, marginal underperformance from local equity building block, constraints on amount of financial institutions ownership we can hold, we were slightly over on banks and insurance," he said.
"But we could not hold on to that because the requirements of the Sarb limit us to 15% and so if Absa or Nedbank rallies as it happened in the 2022/223 year, we had to underperform because we do not want to be in the overweight position."
The PIC also exonerated itself from investment in entities that consequently employed foreign nationals as MPs wondered why it allowed local capital to undermine employment targets.
"We invest broadly, we do not dictate who our partners employ. We cannot give preference or opinion of who the partners employ, we only get the information in the reports they provide for us and even then we are rarely a 100% shareholder to be able to state preferences," Sithole said.
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