There is a least one pocket of excellence left in the Eskom group and that is the Eskom Pension & Provident Fund (EPPF). I am sure its CEO, Sbu Luthuli, would have made a better job of running the utility than the recent incumbents. Perhaps I am naive but I have not smelled the odour of corruption on the EPPF management.
In their recent presentation there was a business-like approach which most private sector pension funds should adopt. In fact, it is governed — like private funds — by the Pension Funds Act. This does not govern the Government Employees Pension Fund (GEPF) or the Transnet funds, which have their own legislation. The EPPF is well-funded, with a 118% ratio of assets to liabilities. This might look excessive but the EPPF is a defined benefit fund — just about the last one standing.
In defined contribution, which now dominates, you get no more and no less than the assets in your pension funds.
But defined benefit works on a formula of guaranteeing a pension based on final salary and length of service. That sometimes means defined benefit funds prefer to invest conservatively to ensure they can meet the guarantee.
But while the GEPF pensions are guaranteed by government (the taxpayer, in other words), EPPF has no explicit guarantee from Eskom. I won’t comment on the value of such a guarantee right now but as they say in New York, "if you’ve got that guarantee and 50c, you can get on the subway".
The EPPF is the first port of call for black managers, whether focused on private or public markets
— Stephen Cranston
It would be easier to imagine the EPPF bailing out the electricity giant, though there should be enough fiduciary safeguards to prevent this — if not, none of our savings is safe. The only way the EPPF can meet its promises to members is by investing well. As a large fund with R140bn it made an impact when it moved the bulk of its portfolios to black-owned and -managed asset managers. It is starting to support black stockbrokers in the same way: it insists on a 20% brokerage allocation for them, which will increase to 40% next year. It is also supporting black-controlled private equity groups.
It already has a 20% holding in Sphere, founded by Pulane Kingston and Itumeleng Kgaboesele. And it will be issuing some serious cheques, such as R350m to the Ethos Mid Market Fund and R200m for Medu Capital. It is not surprising that the EPPF is the first port of call for black managers, whether focused on private or public markets. Chief investment officer Ndabe Mkhize insists that fund returns have not suffered, as the results from the black managers in the fund were very similar to market averages, sometimes better.
Not just a BEE business
The largest allocation is to Kagiso Asset Management, which even conservative asset consultants do not consider to be just a BEE business. It has R6.2bn with the EPPF. Next, with R5.4bn, is Mazi — which beat everyone to win the SA Equity prize at the recent Morningstar awards. Argon has R4bn and First Avenue has R2.5bn. Hlelo Giyose, who runs First Avenue, doesn’t like to be called a BEE manager, as it can mean small allocations, but of course he wouldn’t turn down this chunk of change from the EPPF.
Mkhize says black managers run 9% of industry assets, against 7% managed in 2012. There has been a transformation when it comes to research analysts, with the white proportion falling from 52% to 37% and the African contingent rising from 27% to 36%.
The picture is not as rosy at portfolio manager level, where whites still hold 52% of the positions and Africans hold 20%.
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