Many a boardroom lunch was spoilt if directors knew that PIC boss Brian Molefe was coming to their annual general meeting.
The PIC's combination of commercial and political power is potent. The state-owned asset manager owns more than 10% of the JSE and controls about a third of the bond market. With almost half its funds (about R400bn) invested in listed companies, Molefe has become SA's most feared and, at times, admired shareholder activist for his aggressive approach in trying to transform corporate SA.
It is difficult for companies to say anything about Molefe on the record, but one CEO captures the point: "Brian can be very charming, but he used to make it clear that he had a direct line to [then finance minister] Trevor Manuel and President Thabo Mbeki, if we ever confronted him."
Brian Molefe - Ready to move money around
Sasol, in which the PIC has an 18,4% stake, and Barloworld (13%) are probably the two listed giants that have most felt the mighty power of Molefe (see story on page 36).
But things are changing within the PIC. And Molefe's aggressive style might be going out of fashion. There is a power shift, which will see the PIC becoming more of a service provider than government's lead spokesman on corporate governance.
The PIC's funds under management are equivalent to the value of the entire SA unit trust industry. Its main client is the Government Employees Pension Fund (GEPF), which houses about R750bn in pension money for 1,5m state workers and pensioners. The PIC also manages monies for the Unemployment Insurance Fund, the Compensation Commission and others.
Many assume the PIC is the government pension fund. "There is a misconception that the assets we hold are PIC assets, but they are assets held by our clients which we invest on their behalf," says Molefe. (See table of PIC clients on page 40.)
Albertinah Kekana - Tipped as successor to Molefe
And the GEPF is now taking responsibility for its own investments and no longer expects Molefe to speak for it. This has already reduced the profile of the PIC and Molefe in SA boardrooms. This is good because the PIC can now concentrate on the task of producing the best possible return for its clients.
Molefe says the PIC's primary aim is not to play a developmental role in society, but to ensure that its clients can meet their future liabilities. Rarely has he talked in such humble, practical terms about the role of the organisation which he has shaped over the past seven years. At times Molefe's bark has been worse than his bite. For example, the PIC wouldn't have been able to sell its holding in Sasol if the petrochemical giant had not appointed black directors because it would have been in breach of its mandate. The PIC's mandate from the GEPF gives it little room to buy and sell shares in the way that Allan Gray, for example, does. The PIC has a R300bn internal share portfolio and is required to stay within a tight range at all times.
Molefe's term comes to an end in April. He might be asked to reapply, but even if he does, the Molefe era as we knew it is over. No longer will black economic empowerment dominate the agenda.
Dan Matjila - Team's linchpin
Environmental, social and governance issues - ESG - make up the new buzz phrase. The turning point came two years ago, when the then head of the GEPF board of trustees, Martin Kuscus, announced that the fund would sign the United Nations Principles of Responsible Investment. It made Molefe's focus on black management and directorships look a little parochial.Molefe's flamboyant style and strong political connections were probably what the under-resourced world of state pension management needed when he joined the PIC in 2003. Its reputation had hit rock bottom, having received a qualified audit. The auditor-general was unhappy that the PIC had poor risk management processes and accounting standards.
And it didn't have the necessary infrastructure and skills to carry out the most basic activity of a fund manager - buying and selling shares. It had to learn about running equities from the five private-sector managers - Old Mutual, Sanlam, Liberty, Southern and Momentum - before it could bring three-quarters of its equities in-house by 2007.
The PIC might have shouted about empowerment, but it did little to support empowerment in asset management. It is only by chance that part of its equities were run by black-controlled Futuregrowth: this was the rump of the old Southern Life asset management business, after FirstRand took it over.
So, what is the PIC's future role and what value can it add?
The PIC has begun expanding into other asset classes, building a presence in infrastructure investments through Harith (see graph "One dominant client" in "Taking the high ground") and in property through Advent (see story "Laggard label unfair").
In his more Napoleonic moments, Molefe has talked about bringing other public-sector funds on board, such as several municipal pension funds. "If more public-sector institutions ask us to provide a service, we will oblige," he says. He is also ready to manage the National State Social Security Fund when it is launched.
But if the GEPF has its way, the PIC will have no power or room to expand the organisation other than to exist as a servant of the fund. Says GEPF principal officer Maemili Ramataboe: "The PIC has enough to do for us."
That could be why Molefe has been so quiet in recent months - along with the fact that he's not in the circle of friends of the new Jacob Zuma administration, and he's also president of Business Unity SA. Jimmy Manyi, head of the Black Management Forum and now director-general of labour, has taken over as the bogeyman of reactionary white business.
It seems this kind of role is no longer praised at the PIC, with the GEPF raising the game to a more sophisticated level. Says Ramataboe: "Our policy will look at environmental, social and governance issues, while in the past the focus was too heavily on governance aspects.
"We need to develop a more subtle approach to what we mean by risk-adjusted returns. We need to adjust to take account of sustainable behaviour and be more aware of businesses which rape the environment."
The PIC has learnt to adopt the new governance jargon, and says it has developed a unique matrix mechanism to rate the triple bottom-line performance of listed companies.
In practice, the socially responsible investments of the PIC are channelled through its Isibaya private equity fund - though this has not done much in the way of traditional socially responsible investments to date, or even private-equity deals. It is best known for financing takeovers of large portions of telecommunication companies MTN and Telkom.
Some good skills have been accumulated at the PIC. Molefe is not a professional money manager but, as head of assets & liabilities at treasury, he issued most of the bonds into which the PIC and private sector have invested. He was good for the PIC when it was moved out of the civil service and became a corporation in 2005. It could then start paying market-related salaries.
It needed to do so to satisfy a demanding client. Until June 2005, the GEPF had just one trustee - Molefe's boss, finance minister Trevor Manuel. The lines between the fund and the PIC were somewhat blurred and both organisations were under-resourced. From 2005, a full board of trustees was appointed to the GEPF with 16 trustees and 16 alternates, half each from government and its employees (see story "Taking the high ground"). Some of the union trustees had been fierce critics of Molefe and the more controversial empowerment deals he had facilitated, like Afrisam.
Molefe was expected to change the culture from an office that was full of grey-shoed civil servants shuffling paper to a fully fledged asset manager. It meant increasing the staff from 40 to 160. From 1984 until 2005, the PIC stood for the Public Investment Commission, and operated as a permanent commission of inquiry which did not employ its staff. They were seconded from the civil service, were contractors or were "co-opted" from the private sector.
Molefe would strong-arm the firms with which it had an equity mandate to lend him a few of their staff - which is how Dan Matjila moved from Stanlib to the PIC, first as risk officer (to rebuild the investment process after the account qualification debacle) and then as chief investment officer.
He is now the linchpin of a well-resourced investment team.
The PIC has not attracted "stars" from the private sector and is more comparable to an index funds manager such as Dibanisa or Taquanta, than a mainstream asset manager such as Allan Gray or Investec. But the well-known Gerhard de Nysschen, previously an enhanced index manager at Fedsure and Investec, joined the manager research and selection side.
One of Molefe's strongest appointments has been Albertinah Kekana as chief operating officer.
A chartered accountant, she acquired a strong CV at PricewaterhouseCoopers, Kagiso Financial Services and UBS. An extremely competent manager, she has piloted a lot of the unglamorous but critical tasks such as finalising the process of registration with the Financial Services Board (FSB). She has set up a dedicated compliance function and brought in modern investment administration systems.
And she is the bookmakers' favourite to replace Molefe.
Increasingly the PIC is being run by professionals with a job to do, with less and less politics. The apolitical and less flamboyant style of Matjila and Kekana might be more appropriate for the PIC in the next decade.
Even Molefe has changed his style and rarely makes public pronouncements criticising companies.
Perhaps, not coincidentally, he took note of Kuscus's comment in a speech on responsible investment two years ago: "No-one will be able to accuse us of gunning for one company and not another."
WHAT IT MEANS
 Brian Molefe has built a skilled team
Politics will matter less than performance
|
The PIC likes to think it now operates like a private-sector business. Molefe says it has moved to a performance culture. Such a culture means moving some way from the rest of the public service. And it is literally moving from Faerie Glen, near Menlyn, to even more lavish premises in eastern Pretoria, close to the new FSB offices.
It has retained skilled staff. Though pay is a little below market averages for fund management, it is well above the pay in the civil service or even the FSB.
The packages of R3,4m to R3,9m paid to three executive directors might look low compared with some private-sector investment managers, but there is no risk of losing clients.
If Coronation under performed its benchmark, it would probably not pay bonuses. Yet in 2009, when the PIC under performed the GEPF portfolio by 0,6%, the PIC executive directors were still awarded R1,5m each.
For the GEPF, the excess returns known as alpha will not come from the PIC itself but from the external managers, who run 25% of the equities and have much higher tracking errors than the internal portfolio and more freedom than the five original mandates. After an 18-month search the new equity mandates were awarded in March 2009 (see table left).
There's no doubt the PIC and GEPF have become mature institutions. What does this mean for the nervous directors at those boardroom lunches? They are unlikely to be picked on publicly but behind the scenes they will still have to give account on all fronts as members of a responsible corporate.
Ranking the Analysts 2009
