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The Public Investment Corporation and the philosophy of...

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The Public Investment Corporation and the philosophy of extraction

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By Tim Cohen
10 Apr 2022 0

Tim Cohen is editor of Business Maverick. He is a business and political journalist and commentator of more years than he likes to admit. His freelance work has included contributions to the Wall Street Journal and the Financial Times, but he spent most of his life working for Business Day. After a mid-life crisis that didn't include the traditional fast car, Cohen now lives in the middle of nowhere in the Karoo.

Honestly, I’ve just had it with the Public Investment Corporation. Last week, the state-owned entity lashed out at Absa after the bank appointed a white CEO, Arrie Rautenbach.

Obviously, it’s easy to be misunderstood here, so allow me to explain as carefully as I can what I understand and don’t understand about the Public Investment Corporation’s (PIC’s) action.

What I do understand is that the PIC has a transformative agenda, which as it happens I personally support. The organisation is within its mandate to complain about the appointment of anyone for whatever reason, particularly since it’s a shareholder in the company. That is its right.

By the way, it’s not like Absa didn’t try to find a black CEO; the bank did but the black CEO in question left them after a little more than a year. The reasons why are a bit shrouded, and most of the blame seems to lie with Absa, not with their appointee, Daniel Mminele. But the point is that Absa was not blind to the need to consider race in its appointment of a CEO. After Mminele’s appointment backfired, there was the saga about Sipho Pityana, so there was one fiasco after another.

The PIC announced it was “downright disappointed” by the appointment of Rautenbach, but apparently the need for the bank to appoint someone trusted, internal and respected within the organisation in the context of these successive fiascos was all subsumed by the mere fact of his race.

If the PIC were any old fund manager in SA, that would be entirely its decision. But it’s not. The PIC does not compete with the rest of the industry for clients. It gets its clients by government fiat as the legislated fund manager of the pensions of state employees. Even if it did have to compete for clients, its position would be forgivable if its actual performance was better than the industry’s.

But it’s not. Read the annual report. Some funds outperformed, some did okay. But the big one is the Government Employees’ Pension Fund, which is about 90% of assets under management, and the largest portion of that is the listed investment portfolio, which underperformed by 0.65% over the past year.

This is not a big underperformance, and that tells you something about the PIC; it’s so huge, it’s like a forced index fund. In fact, I’m not sure why it doesn’t just investment in an index fund; when you are that large, it’s almost impossible to outperform the market, or underperform it, and you would save a huge amount on fees.

The real problem is the PIC’s unlisted portfolio, and that is really where we can determine the actual investing skill of the PIC, and it will surprise nobody that it’s just completely useless, as the Mpati Commission has highlighted, dishing out huge amounts of money on wild ideas so long as the race of the client checks the box.  

So here is what I don’t understand about the PIC’s criticism of Absa.

First, the organisation is outraged about the appointment of a white guy. Fair enough. But where is that outrage when it comes to being stiffed by its own clients? Just one of many examples: the PIC lent a consortium let by Iqbal Survé about R253-million to buy the Independent Newspapers Group, which by common acknowledgment hasn’t been paid back. So why has the PIC not perfected its claim? Why not reclaim the asset and let some other black investor give it a shot?

Why does it seem to be completely indifferent about being stolen from, particularly given that the money being stolen belongs to pensions of state employees? We are told there are court cases, which we all know will never actually happen because, at root, the PIC doesn’t apparently care. And how do we know that? Because surely being stolen from is worthy of an angry press release or two? But we haven’t seen any of those press releases. Not a single one. Or, as it happens, an actual court case.

Second, if the PIC is so outraged about Absa appointing a white guy, why is it supporting the takeover of Tongaat Hulett by not only a white guy, but a foreigner, whose family is involved, by some accounts, in stifling the South African tax authorities?

The overarching point here is that there is a big cleavage in SA society, and it has less to do with race than people imagine. There are gazillions of fabulous, successful black businesspeople in SA. The difference lies elsewhere: it vests in a philosophy of extraction versus a philosophy of creation. The philosophy of extraction puts race first. The philosophy of creation puts the customer first.

And the problem with the philosophy of extraction is that eventually you run out of money to extract. Just ask the employees of Denel, who didn’t get paid in full, again, this month. Denel was once a hugely renowned player in the defence industry. Then it became an institution of extraction. Then the money ran out. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

  • This article has been corrected to reflect that the PIC did not extend a loan to Iqbal Survé in his personal capacity to buy Independent Media which was a conceivable interpretation of the original text. The company has clarified that the loan was extended to a consortium led by Survé, and amounted  to R253-million. The PIC also spent R167-million for a 25% equity stake, R183-million to acquire a pre-existing shareholder loan, and  R285m on preference shares for capital restructuring. Apologies for the possible misinterpretation.

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