During the past ten years assets under management of the Public Investment Corporation (PIC) grew from R598 billion in 2006 to R1.8 trillion in 2015 – almost equal to 50 percent of the country’s gross domestic product (GDP). Our staff compliment grew from 67 people to 405 people over the same period.
The growth in the number of professionals, changing mandates and growth in assets under management allowed us to diversify our asset classes and from a mere holder of government bonds, the PIC has become the largest asset manager on the African continent, with investments in local and foreign bonds, local and foreign equities, cash and money markets, developmental investments and private equity.
The PIC also holds a significant property portfolio, with our flagship property investment not far from here, the V&A Waterfront. The PIC owns almost 13 percent of the JSE market capitalisation and 24 percent of the bond market capitalisation.
Difficult times
There is no doubt that we are experiencing difficult times and the road ahead will not be easy. Adding to the already negative economic conditions is the reality that South Africa is experiencing one of the most serious droughts in recent history.
Our economic and social woes are further worsened by the fact that the country is characterised by certain socio-economic factors that increase its vulnerability to these challenges. A large proportion of our population has low resilience to climate events, such as this drought. They are faced with poverty, inadequate infrastructure and housing, a high disease burden and lack of access to basic services and proper health care. The question is how the asset management industry should react to these economic and social challenges.
For the PIC, the answer to that question lies in our investment strategy called Vision 2030 with our “direct” investment approach – developmental investing for radical socio-economic transformation. This approach of developmental investments and transformation is based on the premise that our research shows a direct correlation between the GDP (economic growth) and the growth of the PIC’s assets under management, and there is also a positive correlation between our investment returns and the performance of the economy. Our investment approach has changed from our traditional approach over the past 10 years in that we:
* No longer have a passive investment strategy – we have an active investment approach through our developmental investments and alignment with government economic priorities, such as the National Development Plan.
* No longer do we have an investment approach based purely on benchmarks with little focus on economic growth – we have a developmental investment approach where we focus on benchmarks, as well as economic stimulus.
* We have changed from a moderate to average social impact focus to a very strong focus on transformation and job creation.
* We do not focus on short-term benchmarks – we focus on long-term sustainable investment returns.
Our developmental investment strategy is based on five pillars, namely:
* Economic infrastructure – with a focus on sectors such as transport, water and mining.
* Social infrastructure – with a focus on affordable housing, health and education.
* Priority sector investments, where the focus is on agriculture, agro-processing, manufacturing and beneficiation.
* A focus on small and medium-sized enterprises.
* Environmental and sustainability – with a focus on renewable energy, clean technology and green buildings.
During our last financial year with our developmental investment approach the PIC has achieved the following:
* Job creation: Created and sustained in excess of 80 000 jobs.
* Community upliftment: Supported more than 25 000 community groups with small loans, funded 350 small, medium and micro-sized enterprises and funded 14 community trusts and employee share schemes.
* Education: More than 15 000 student loans were granted and more than 11 000 student rental accommodation units were made available.
* Health care: three hospital projects were financed, adding 445 beds to the system.
* Housing: Almost 30 000 affordable houses were built.
* Energy: An additional 2 016 megawatt-hours were added to the grid mainly through renewable energy projects.
Slow pace
The PIC with the Government Employees Pension Fund (GEPF) also responded to the slow pace of transformation in the South African investment management industry with the launch of the Black Economic Empowerment (BEE) Development Programme for asset managers.
The slow pace of transformation in the investment management industry led the PIC (in conjunction with the GEPF) to launch the BEE Development Programme (then called Incubation Manager Programme) in 2009 to see black economic empowerment (BEE) managers grow into successful businesses in the long run that will be able to compete with the traditional asset managers.
There are 14 BEE asset managers out of a total of 18 asset managers (78 percent, that is, managers that are black owned) within the PIC’s composite of external asset managers. These managers are managing R53bn (41 percent of our external fund) of the externally managed composite portfolio. While still small, this represents a 100 percent increase from the 20 percent allocation on April 1, 2009 (R6.9bn). The main challenge is a very low number of female-owned BEE firms participating in the programme, as well as a lack of advancing socio-economic transformation within the sector.
We also need to expand the programme to cover other asset classes, such as fixed income, hedge funds, global and Africa mandates. To overcome some of the challenges, the PIC has introduced the graduate programme in collaboration with BEE managers to support youth employment, as well as advancing women participation in the industry.
We have also been active in the stock broking sector, which is lagging behind the rest of the country in the transformation agenda. In 2013, 34 of 610 registered brokers (6 percent) were black and 73 (12 percent) were female run.
Disappointing
The number of black analysts in broker firms remains disappointing. It is clear that reliance on regulation alone is insufficient to foster industry transformation.
Regulatory compliance is adopted to manage regulatory risk rather than advance transformation. In conclusion, the PIC has responded to the need to contribute towards the growth of the economy – we have acknowledged the fact that under current economic conditions it is important that we adopt a dual mandate – we have the responsibility to meet and exceed certain benchmarks for our clients. But we must ensure that we focus on long-term sustainable investments that contribute to economic growth and development.
We also have a renewed focus on shareholder activism and have adopted new corporate governance policies for listed equities, fixed income, state-owned entities and unlisted investments.
It is up to the investment community to ensure that they invest in line with a long-term sustainable strategy. The focus should shift from short-term performance benchmarks to sustainable returns over the long term. The challenge is on all of us to stimulate economic growth, to create and sustain jobs, to protect our environment, to educate our children, to alleviate poverty and to meaningfully transform the economy.
* Dr Daniel Matjila is the chief executive of the Public Investment Corporation.
** The views expressed here do not necessarily reflect those of Independent Media.
BUSINESS REPORT