PIC’s Ability to Manage Funds Questioned After Edcon Bailout

(Bloomberg) -- South Africa's biggest government workers union questioned the ability of the Public Investment Corp. to manage about 1.8 trillion rand ($128 billion) in pension funds after the money manager bailed out the country's second-biggest clothing retailer following political pressure.

The Public Servants Association, which represents 240,000 government workers, said it questioned the process whereby the 2.7 billion rand rescue of Edcon Holdings Ltd. was approved. The bulk of the 2 trillion rand managed by the PIC comes from the Government Employees Pension Fund.

The March 1 rescue came a week after a senior official of the Congress of South African Trade Unions emailed the deputy finance minister, who was also chairman of the PIC, and said a failure to fund Edcon could lead to a loss of votes for the ruling African National Congress in May elections and would damage the federation's alliance with the party. Bloomberg reported about the previously undisclosed email on June 28. The PSA is not a member of Cosatu.

There is “an obligation on the PIC to make sound business decisions and to adhere to the strict rules that are applicable when such decisions are taken,” the PSA said in a statement. “The PSA is increasingly concerned about the PIC's capability to manage a fund such as the Government Employees Pension Fund in an accountable and ethical manner in line with the principals of good governance.”

To read Bloomberg's story about the PIC's Edcon rescue click here

The PIC, which didn't respond to Bloomberg's questions before the publication of the June 28 story, said in a statement that it “didn't succumb to any external political or union pressure” when making the decision.

Job Losses

The 1.2 billion rand contributed by the PIC came from the Unemployment Insurance Fund, one of its smaller clients, and was in line with that organization's mandate, it said. If the intervention had not been made 140,000 jobs would have been lost and the UIF would have had to pay out unemployment benefits. The rest of the money came from Edcon landlords and banks that already lent funds to the company.

Those banks and landlords insisted on the PIC's participation in the rescue, Edcon CEO Grant Pattison said, Johannesburg's Financial Mail reported this week. The retailer received support from government ministers, he said, according to the magazine.

The investment by the PIC ran counter to the recommendations of its investment professionals, two people with direct knowledge of the situation said.

“Is it good business sense that the PIC should be the sole asset manager investing on behalf on government worker pension funds?,” Tahir Maepa, deputy general manager for members' affairs of the PSA, said in an interview in late May. “We believe there has to be multiple asset managers that should be given an opportunity to invest on behalf” of government workers, he said. “We want an opening in terms of the percentage of the investments that goes to the PIC and other asset managers.”

The PIC is currently the subject of a judicial inquiry into its governance and the PSA said it may take legal action against it when the findings of that commission are made.

To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

To contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Rene Vollgraaff, Gordon Bell

©2019 Bloomberg L.P.