Marcus asks about meetings between the GEPF and PIC which have not happened frequently as they should.

To this Sithole says he does not want to point fingers.

In instances when meetings did not take place, it is not because the GEPF did not try reschedule meetings.

The GEPF is "by and large available" for meetings that are scheduled. if meetings did not take place it is because the PIC did not avail themselves for those meetings.

Sithole says that beneficiaries (unions) are allowed to ask about investments- but they must be aware that their benefits are separate to investment decisions.

The government guarantees the benefits.

Lediga asks if the worst the GEPF can do to the PIC is extract its assets.

Sithole says yes, but it is not the only.

In the past there were concerns with how the PIC dealt with investments in an uncertain environment.

What the GEPF did was then to limit the investments to R2bn. 

If the PIC wants to invest more than R2bn, it must consult the GEPF, who will interrogate the rationale. The GEPF can limit the discretion in what the PIC can do, or withdraw the investment mandate. 

The GEPF does not have to be limited to the PIC in choosing an asset manager.

Some people believe there is an unbroken umbilical cord between the two organisations- in law there is no such.

The GEPF can look for other avenues to manage its assets to the extent it believes it is correct to do so.

I am not saying it will be an easy process- it will be a difficult process. 

The GEPF has a developmental investment policy too - in order to address economic, social and environmental challenges in the country.

The investment policy can be amended by the board of trustees and the finance minister with consultation, says Sithole.

The GEPF is not solely concerned if the PIC survives or not- it is concerned with whether it executes the mandate undertaken in accepting the investment management agreement.

The PIC is not the only asset manager around, there are other asset managers.

There are things the GEPF itself can do to manage its own assets.

Lediga asks if there is any recourse for the GEPF if the PIC loses funds.

Sithole says investment managers make bona fides losses- no investment manager can guarantee the decisions they make will always be correct and turn out - this is not unique to the PIC.

The fact investment monies can be lost is part of the nature of investment and taking risk.

Those losses- we do not want them, we wish we did not have them but it is part and parcel of our investment.

But where there is negligence- it must be demonstrated and proven in court of law - if there is such the GEPF will take action.

Sithole says there challenges when there are changes to the finance ministry.

You engage with one minister, then a few months down the line you have to start all over with another minister.

We have had difficulties in getting finality because there has not been consistency in the ministry - that has been the biggest challenge to finalising agreements.

Law prescribes that the board consult the finance minister if there is any change in investment policy.

It also means the finance minister can't make unilateral changes to the policy - consultation between the parties is necessary.

There is legislation to govern the investment agreement- the PIC Act, the FAIS Act, Security Services Act, Public Finance Management Act, rules of JSE, among others.

Relationship between GEPF and PIC

The PIC is a separate corporation to the GEPF, with its own board and management, Sithole says.

The PIC is an asset manager - owned by the state. 

The relationship between the GEPF and the PIC is governed by an investment agreement.

Since 2007 there have been two addenda to the investment agreement.

Assistant commissioner Gill Marcus asks if a board of trustee on the GEPF should not be allowed on the PIC board.

Sithole acknowledges there is a conflict of interest that exists if the mandater (board of trustee rep) is also the implementer (PIC board rep).

What is done to manage the conflict of interest - is to evaluate which aspect of the management of the GEPF are those directly involved in the management of the PIC and how does one create distance in those processes.

The board of trustees at GEPF are involved with more than just investment. So when it comes to investment- the board of trustees should recuse themselves from investment discussions. Sithole reiterates it is about managing conflict.

Assistant commissioner Emmanuel Lediga asks if those on the board must go through a fit and proper test.

To this Sithole replies - the answer is yes. Fit and proper is a requirement for most boards, not just the PIC. So why would the PIC be dealt with differently.

It is important for the board of the PIC to act in the interests of the entity, says Sithole.

He adds that it's not about who is on the board/ what constituency they represent/ where they come from but if they act in the best interests of the entity.

It is not too important who serves on the PIC board - provided they have the qualifications to execute the responsibilities entrusted to them, and that they do so diligently.

There are small investments the GEPF has made directly. 

The PIC has been used as the principal investor.

The GEPF has an investment committee doe snot have independent committee members. Those serving on it are trustees. 

There is sufficient capacity within the investment committee- which is why there is no need to bring in external expertise. 

The investment committee is comprised of 15 members.

The GEPF understands its success is not isolated from the development of SA, a strain on the economy affects the fund, Sithole says.

When someone retires, the member is entitled to a pension.

But a member can choose to take a third as a lump sum and the rest is paid for the rest of their life as an annuity, Sithole explains. 

The GEPF is managed by a board of trustees - 16 members.

Benefits of the GEPF are guaranteed by the State. 

Any changes Parliament approves which creates a strain on the fund, must be funded by the government.

Sithole says the GEPF was established in 1996, among the largest pension funds in the world.

The GEPF is not a state institution.

The inquiry has started with GEPF CEO Abel Sithole before the commission.

The PIC invests on behalf of the GEPF.

Eskom’s quickest fix is giving it cash now, swapping debt later

Ask Nedbank Group Chief Executive Officer Mike Brown how to save South Africa’s beleaguered state-owned power utility and his approach is simple: first give it cash and then consider a debt-to-equity swap later.

Eskom is paying so much in interest on its debt - at the same time that its income is falling - that the company is struggling to keep the country’s lights on. To ease the firm’s cash-flow woes, the government is planning a R230bn bailout. While the state initially wanted to spread that over 10 years, a significant portion is now being expedited, with details expected from National Treasury on July 23.

“For all practical purposes, we don’t have any easy or good options available at this stage.” Brown said in an interview in Durban on Friday. Bringing forward the bailout package or increasing the amount “is the most practical short-term solution.”

Other suggestions are being considered to ease Eskom from the burden of more than R440bn, 70% of which is guaranteed by the state. One includes a proposal to convert debt held in Eskom on behalf of over 1 million state workers into equity, as reported by Bloomberg on July 11. Another is said to include shutting coal-fired plants early to get cheaper financing and to make way for renewable energy.

Green energy is a “possible alternative but incredibly complicated to implement and likely to take three to five years to get up and running,” Brown said. “Eskom has a six-month problem.”

The Government Employees Pension Fund will appear before the PIC commission on Monday, with former PIC CEO Dan Matjila to continue his testimony afterwards.

Last week Matjila told his commission of political interference which led to him being removed from the asset manager which oversees R2trn in state funds.

He also told the commission that he did not influence any of the PIC's investment decisions. 

The inquiry starts at 09:30