Biggest Africa Fund Manager May See Funds Pulled by Unions

(Bloomberg) -- Africa's biggest fund manager may be dumped by a labor federation representing 230,000 South African state workers because it's concerned that the funds of its members may be used to bail out mismanaged state-owned companies.

The Federation of Unions of South Africa, the country's second-largest labor union grouping, is considering replacing the state-owned Public Investment Corp. with privately owned fund managers to oversee the pension funds of the state workers, including nurses and teachers, that it represents.

“There is nothing in the law that requires the Government Employee Pension Fund to use only the PIC as an asset manager,” Fedusa General Secretary Dennis George said by phone Thursday, referring to the GEPF, the central account for state workers' retirement savings and the PIC's main client.

In August, Finance Minister Malusi Gigaba told executives of the Congress of South African Trade Unions, the largest labor federation, that he can't guarantee the government won't attempt to make use of funds held by the PIC to recapitalize struggling state-owned companies and fund other projects, Business Day newspaper reported, without saying how it obtained the information. The Treasury is seeking funds to rescue state-owned South African Airways.

The step is among the options being considered by Fedusa, which represents about 500,000 employees in total including members of the Public Servants Association.

Reserves Rights

The PSA isn't satisfied with the response from the GEPF about reports that the government is considering using workers pension money to bail out the national airline through the PIC, the union said in an emailed statement.

“The union reserves its rights while considering options to stop any public servants' pension fund money being wasted into SAA,” it said.

A report in Johannesburg's Star newspaper of an attempt to remove Daniel Matjila as chief executive officer of the PIC ignited concerns that it could be drawn into the ruling African National Congress's internal battles and that its assets may be used to support struggling state companies. The PIC expressed confidence in Matjila after a special board meeting on Sept. 15, denying there was an attempt to fire him.

To read more on PIC CEO Dan Matjila's rejection of allegations against him, click here

The Pretoria-based PIC oversees about 1.86 trillion rand ($141 billion), mainly state employees' retirement savings. Its equity investments account for about 13 percent of the market value of the companies that trade on the Johannesburg Stock Exchange, the manager says on its website.

A less dramatic option would be to push for unions to have representatives on the boards of investment firms and have a greater say in the affairs of the GEPF, George said.

Liability Study

“We will occupy the space in the Government Employee Pension Fund and bring the PIC straight to order in terms of their mandate,” he said.

The PIC hasn't been approached by Fedusa, spokesman Deon Botha said in an emailed response to questions.

“The PIC's investments on behalf of the GEPF are done in terms of an agreed Financial Services Board-approved investment mandate, which is based on a detailed asset and liability study,” he said. “This mandate gets reviewed as and when it is necessary. The mandate outlines the asset classes, including the risk parameters within which these investments can be made. It is also necessary to indicate that the Investment Committee of the GEPF is constituted by representatives from various sectors of the economy, including labor.”

The GEPF didn't immediately respond to an email seeking comment.

Cosatu's Call

While it has not considered dumping the PIC, Cosatu wants workers' pensions invested to develop public infrastructure that will benefit the country's poor, said Sdumo Dlamini, president of the federation whose unions speak for about 1.7 million employees.

“Where there could be a convergence with Fedusa is where we as Cosatu say workers' money should be invested where we are able to develop South Africa,” Dlamini said by phone.

The labor group, which is in an alliance with the ruling African National Congress, has criticized Gigaba's idea of using state employee pensions to save sinking state companies.

“If there is mismanagement, it must be fixed so that the state is strong in holding on to the companies,” Dlamini said. “They must remain as state-owned entities and they must be strengthened in terms of governance and management, before you then say ‘how do we bail them out or not?' Let's make sure money is not thrown in a big hole there.”

To contact the reporter on this story: Sam Mkokeli in Johannesburg at mmkokeli@bloomberg.net.

To contact the editors responsible for this story: Karl Maier at kmaier2@bloomberg.net, Ana Monteiro, Vernon Wessels, Gordon Bell