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

Public Investment Commissioners2 CONTENTS Section 1Background Section 2Challenges confronted by PIC Section 3Concerns raised by Cosatu Section 4Response to Cosatu’s key recommendations Section 5Conclusion

Public Investment Commissioners3 BACKGROUND SECTION 1

Public Investment Commissioners4 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: Bonds52% Equities32% Property 6% Cash 5% Other 5% (includes Isibaya)

Public Investment Commissioners5 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 31 st of March 2003  Operational Assets of the PIC were R91 million as at 31 st of March 2003

Public Investment Commissioners6 CHALLENGES CONFRONTED BY THE PIC SECTION 2

Public Investment Commissioners7  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

Public Investment Commissioners8  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

Public Investment Commissioners9 CONCERNS RAISED BY COSATU SECTION 3

Public Investment Commissioners10 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

Public Investment Commissioners11 Growth in PIC’s Assets under Management  PIC’s assets under management have grown from R32,1 billion in 1989 to R309 billion in – 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

Public Investment Commissioners12 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)

Public Investment Commissioners13 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

Public Investment Commissioners14  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

Public Investment Commissioners15  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

Public Investment Commissioners16 RESPONSE TO COSATU’S KEY RECOMMENDATIONS SECTION 4

Public Investment Commissioners17 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 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

Public Investment Commissioners18 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

Public Investment Commissioners19 CONCLUSION SECTION 5

Public Investment Commissioners20 In view of the aforementioned clarifications it is recommended that the Committee approve the Bill for tabling in the National Assembly