PIC seeks to boost sluggish growth, lift returns

JSE headquaters in Sandton.photo by Simphiwe Mbokazi 453

JSE headquaters in Sandton.photo by Simphiwe Mbokazi 453

Published Aug 29, 2014

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Janice Kew and Franz Wild

THE PUBLIC Investment Corporation (PIC) planned to improve returns by investing to reinvigorate the flagging economy, chief investment officer Dan Matjila said on Wednesday.

The average annual rate of return for the manager of R1.6 trillion of mainly public servants’ pension funds should reach 18 percent to 20 percent over the next five years from about 16 percent over the past decade, Matjila said.

Matjila said he would like to double the share of funds allocated to African countries outside South Africa to 10 percent of its portfolio and allot a similar proportion to “developmental investments”, which range from education to energy.

“The strategy going forward is how do you invest wisely in the economy so you can catalyse the growth that is needed for the growth of our assets under management,” Matjila said.

He said economic growth needed to reach 4 percent for Africa’s biggest fund manager to hit its targets. “The size of the assets that we manage account for almost one third of gross domestic product (GDP), so we have huge influence.”

With government workers’ pensions making up 90 percent of the Pretoria-based manager’s funds, the PIC is betting that its emphasis on developing South Africa’s power generation, roads, banks, communications and education will boost the continent’s second-largest economy and improve the returns from the stakes it has in some of the country’s biggest companies, which range from MTN to Impala Platinum.

About 80 percent of the PIC’s managed assets are invested in companies traded on the JSE.

A permanent replacement for chief executive Elias Masilela has not been named since he stepped down in June.

A five-month strike by platinum miners pushed the economy into contraction in the first quarter. It recovered to expand an annualised 0.6 percent in the second quarter. GDP has grown an average 3.4 percent annually since 2000.

Inadequate infrastructure and a shortage of skills have held back the economy, contributing to a 25.5 percent jobless rate and a curb on power supplies for new projects.

“If we invest wisely with SA Inc, we should be able to pull this economy out of this 2.5 percent or 3 percent” annual growth band, Matjila said. “We will be hitting two birds with one stone. One, we are getting the social impact that we require. And at the same time, we’re getting that benefit in terms of return.”

Having decided to start buying into projects aligned with the government’s developmental objectives 18 months ago, it would take a few more years before the PIC could identify how the returns from these differed from those in traditional investments, Matjila said.

“You need to be able to take bets, calculated bets. If you are able to ensure that your bets happen, not by hook or crook or other means, but by just doing the right things, you should come out a winner,” he said. In reference to billionaire investor Warren Buffett, who acquired one of the largest railroads in the US, he said: “Now that’s the master at work.”

Matjila said increasing investments in developmental projects, such as renewable energy, and in the rest of Africa would spur returns.

“Then we’d be putting the investments on steroids.”

Having bought stakes in Ecobank Transnational and Dangote Cement, the PIC was seeking holdings in other companies with a similar reach, Matjila said. Both companies operate across the continent.

“We like those companies, which have the potential of developing into pan-African champions,” he said.

Matjila said the PIC would put more pressure on companies to improve governance, curb excessive executive pay and avert future failures like the collapse of African Bank Investments, in which the PIC had a 12 percent stake, data show. – Bloomberg

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