What transparent nonsense: Treasury's PIC blunder
Its objection to more Public Investment Corporation transparency is contradictory and at odds with global best practice
The National Treasury is a great asset for all South Africans. Yet sometimes it blunders. Consider the inexplicable opposition it has mounted to increased transparency for the Public Investment Corporation.
Parliament is currently considering a private members’ bill to amend the legislation that governs the PIC. There are various aspects of the bill, one of which concerns the transparency of the PIC’s investment portfolio. As has been well covered, several recent examples show very poor investment decision-making by the PIC.
The list of bad investments includes VBS Mutual Bank, Independent Media, AYO Technologies, Erin Energy and S&S Oil Refinery, all of which have lost billions for the PIC’s clients and were made using inexplicable reasoning. Most were valued at unjustifiable amounts, and proper due diligence processes were not followed.So the bill requires that the PIC publishes a list of all its investments, both those ones listed on stock exchanges like the JSE and unlisted investments held in its private equity portfolio, on the PIC’s website and also in National Treasury’s annual report.
National Treasury objects to this in a way that is internally contradictory and clearly at odds with global best practice.
A letter to the standing committee on finance, signed by Finance Minister Nhlanhla Nene and circulated last week, argues that disclosures of unlisted investments should only be made with the consent of “depositors”, by which it means clients. This confuses the role of fund manager and its client.
The fund manager holds a portfolio of assets on behalf of its clients, one of which is the GEPF. Fund managers routinely disclose their portfolios – every unit trust does it. This does not imply that the fund manager discloses the interest of as specific client. In the case of unlisted investments, the asset managers are private equity general partners (GPs). The question of transparency is whether the holdings of the GP should be disclosed, not the exposure of specific clients.But the far greater confusion comes on the question of listed investments. The minister’s letter rightly says that “the shareholders of listed companies are [sic] publicly available information” referring to the disclosure of large shareholders listed companies provide in their annual reports.
But the minister seems unaware that the entire share register of listed companies is publicly available, through such data providers as Bloomberg. Not only can you see the holdings that the PIC manages for the GEPF, but also another 24 asset managers that have been given GEPF mandates. You can track those movements to see what the PIC is buying and selling as well as the changing values of the PIC’s portfolio, all with a mouse click.
The minister then writes, “As [to] the disclosure of listed investments, it is not supported because it will entail a collation of all the listed investments with [sic] can influence the market. Other investors can very easily see what the PIC’s positions and views of the market are, and that is risky since the PIC is the largest investor on the JSE.”
What nonsense is this?Investors can easily see all of this information anyway. The only people who can’t see are the general public who don’t have access to data providers like Bloomberg. The minister’s position makes no sense.
There is also little comprehension on display regarding the share registers of unlisted companies. The public has the right to obtain the share register of any company in South Africa for any reason. This was confirmed in an important judgment in 2016 by the Supreme Court of Appeal in the Moneyweb/Nova Property Group case. It effectively means that all share registers are public-domain information and companies may not refuse to disclose it. Their permission for disclosure is unnecessary.
We should be looking to best practice when it comes to the transparency of the PIC and the GEPF. One example we could learn from is the California Public Employees’ Retirement System (Calpers). It manages $352.69-billion, more than twice as much as the PIC. Calpers discloses the daily value of its investments in real time on its website.
You can drill down into its private equity portfolio, with details on the cash flows received and funds committed line by line. Calpers’s monthly board meetings have open sessions that are broadcast live on its website. Its website is chock-full of reviews of decision-making processes and outcomes.
Or consider Denmark’s ATP, which is smaller than the PIC and manages that country’s supplementary national pension savings. Each year it discloses all private equity interests of more than 5% of target companies and every exposure to listed entities. Like Calpers, it also provides extensive information regarding its internal costs, so that the public can assess whether it is efficient in its work.
These are the examples the PIC should aspire to emulate in its levels of transparency. It is very disappointing that National Treasury does not seem to agree.