1 PUBLIC INVESTMENT CORPORATION BILL – RESPONSE TO SUBMISSION BY COSATU Presentation to Portfolio Committee on Finance 3 August 2004

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PUBLIC INVESTMENT CORPORATION BILL – RESPONSE TO SUBMISSION BY COSATU

Presentation to

Portfolio Committee on Finance

3 August 2004

Public Investment Commissioners 2

CONTENTS

Section 1 Background

Section 2 Challenges confronted by PIC

Section 3 Concerns raised by Cosatu

Section 4 Response to Cosatu’s key recommendations

Section 5 Conclusion


BACKGROUND

SECTION 1


Background

Commissioners appointed by Minister in terms of PIC Act, 1984

PIC manages funds on behalf of public sector bodies Largest depositor is GEPF – has given PIC a mandate

on how funds should be invested Mandate allows PIC to invest as follows:

Bonds 52% Equities 32% Property 6% Cash 5% Other 5% (includes Isibaya)


Background - Continue

42 Clients in total including: Unemployment Insurance Fund Associated Institution Pension Fund Compensation Commissioners Pension Fund Compensation Fund RDP Fund School Building Fund; etc

R309 billion assets under management as at 31st of March 2003

Operational Assets of the PIC were R91 million as at 31st of March 2003


CHALLENGES CONFRONTED BY THE PIC

SECTION 2


Key issue to be addressed by the Bill - Act does not provide for PIC to be legal and corporate entity - creates uncertainty around legal standing of the PIC – may limit ability of PIC to act as counter party

Governance and organisational structure Employees seconded by National Treasury and report

to Director-General Commissioners held responsible for making and

monitoring investments - have no authority over employees

Disempowering for Commissioners and not conducive to environment in which employees are held accountable for their performance

LIMITATIONS OF PIC ACT


Ability to attract and retain employees – Concern raised by Auditor-General and SCOPA

“Resources and the PIC Act did not enable the PIC to operate effectively in a highly specialized financial services environment.” – Auditor-General

Regulation of PIC activities – PIC not regulated on same basis as private sector investment managers (Financial Markets Control Act, 1989 and Stock Exchanges Control Act, 1985)

LIMITATIONS OF PIC ACT


CONCERNS RAISED BY COSATU

SECTION 3


Growth in Government Debt Government debt as percentage of GDP has been

decreasing since 1995/96 – 48% of GDP in 1995/96 to 37% of GDP in 2003/04

Debt service costs as percentage of GDP – 5% of GDP in 1995/96 to 3% in 2003/04

Between 1994 and 2004, SA’s sovereign credit ratings have improved from Baa3 to Baa2 (Moody’s) and BB to BBB (Standard and Poor’s)

No phenomenal increase in Government debt and debt service costs pose no threat to fiscus


Growth in PIC’s Assets under Management PIC’s assets under management have grown from

R32,1 billion in 1989 to R309 billion in 2003 1995 – 1997 assets under management from

R94 billion to R141 billion due to the incorporation of former homelands’ pension funds

1997 to 2002 annual compounded growth in assets under management was 12,9% - due to performance of investments and increase in member’s contributions


Process of the introduction of the Bill into the National Assembly Cabinet approval on 4 February 2004 – Cabinet

made announcement to this effect – intended corporation extensively covered by national media

Bill published in terms of rule 241(2) in Government Gazette of 20 May 2004 – closing date for submission was 18 June 2004 (29 days)


Privatisation of the PIC Bill provides for State to be sole shareholder of

Public Investment Corporation (Clause 3) Clause 3(3) of Bill was deleted by Portfolio

Committee of Finance – no longer possible for Minister in consultation with Cabinet to dispose of shares in the Corporation

PIC will remain under ownership control of Government – have a legal entity similar to IDC and DBSA


Transfer of assets and liabilities in Bill only refers to operational assets of the Commissioners

No transfer of assets managed on behalf of clients Total assets of PIC as at 31 March 2003 were

R90,8 million

Transfer of PIC Assets


State as sole shareholder to appoint Members of the Board and the Chairperson

Appointments by Minister of Finance in capacity as representative of the State in consultation with Cabinet

Minister may consider Board appointment nominations from PIC clients

Board Appointments


RESPONSE TO COSATU’S KEY RECOMMENDATIONS

SECTION 4


Response to key recommendations The initiative puts at risk pension funds of pension fund members

Bill is intended to increase efficiency with which pension funds are managed

The rushed manner of tabling the Bill in Parliament All Rules of Parliament were adhered to in introducing the Bill

The status of the Bill needs to be clarified Bill is not a draft Bill Bill published in terms of Rule 241 of Parliament in Government

Gazette No 26383 of 20 May 2004 Introduced as section 75 Bill in Parliament on 1 June 2004

GDS commitments by GEPF PIC will invest funds in line with GEPF Mandate


Response to key recommendations - Continue

Merger of PIC and GEPF The Bill does not propose to merge the PIC and GEPF

Divesting of shares owned by the State Bill does no longer provide for the State to dispose of any

shares in the Corporation Board representation

In appointing the Board, the Minister may take into consideration nominations by clients of PIC

Open ended powers of Directors to invest funds Investments will only be done in terms of client mandates as

required by FAIS Act


CONCLUSION

SECTION 5


In view of the aforementioned clarifications it is recommended that the Committee approve the Bill for tabling in the National Assembly

Documents

1 PUBLIC INVESTMENT CORPORATION BILL – RESPONSE TO SUBMISSION BY COSATU Presentation to Portfolio Committee on Finance 3 August 2004