How the PIC melted workers’ pensions

The Public Investment Corporation (PIC) – granted the huge responsibility of protecting the savings of nearly 1.3-million civil servants and more than 565,000 pensioners and other beneficiaries such as widows and orphans – treats that duty with an investment dysfunction that suggests grotesque incompetence. 

In fact, high school students who take part in the annual JSE Investment Challenge could and would have done better. As for the grotesquely well-remunerated PIC investment team, they palpably have no idea what they are doing.

The reason we know this for a fact – as opposed to the commentary which has been associated with this subject for years – is because finance minister Enoch Godongwana, answering a parliamentary question from DA MP Andrew Bateman, has finally fessed up to the internal rate of return (IRR) the PIC’s Isibaya Fund has produced for the Government Employees Pension Fund (GEPF) since March 2006. 

That’s 20 years of unlisted, illiquid, high-risk developmental investing – and the result is a number that a money market account could have beaten while it was asleep.

At first glance, 4.25% looks merely disappointing, the financial equivalent of a participation trophy. Think for just a second longer, and the reality hits home: over the same two decades, South African inflation averaged about 5.3%. Isibaya did not grow the savings of civil servants; it melted them, gently and patiently, the way a glacier retreats – too slowly to notice on any given day, unmistakably when you look back.

A mediocre return in a hi-vis vest

Isibaya was never meant to be a hedge fund, and nobody is asking it to be one. The GEPF’s unlisted developmental mandate dates to 1997, and its dual purpose – financial return plus jobs, transformation, infrastructure, growth – is perfectly defensible. Patient capital has a role. Development finance has a role. A large public pension fund can responsibly devote a carefully fenced-off slice of its assets to exactly this sort of thing.

But “developmental” is an adjective, not an incantation. It doesn’t discharge the key questions. Who is the borrower? Where is the security? What are the covenants? Who steps in when the project stumbles? And – the question South African public finance most reliably forgets – who gets fired when nobody asked the first four?

The standard rebuttals are that IRR is cash flow-sensitive; private equity is lumpy; social returns matter; and you cannot reduce nation-building to a Bloomberg terminal. All true, up to a point – private equity specialists themselves caution that IRR needs public-market-equivalent comparisons to mean much. Very well. Let us be generous and compare Isibaya not with the Nasdaq, nor with some swashbuckling venture fund, but with the dullest company we can find.

British International Investment – an actual development finance institution with all the developmental constraints that implies – recently reported a seven-year weighted-average return of 5.1% in sterling terms, which is worth considerably more in rand terms, and comfortably over its hurdle rate of 2%. At the Development Bank of Southern Africa, for instance, only 3.2% of its roughly R115bn loan book is non-performing. Against this field, Isibaya’s 4.25% is not a noble developmental compromise. It is a profoundly mediocre return wearing a high-visibility vest.

The big, fat zeros

The one piece of good news is that the PIC has invested with almost absurd caution. The GEPF’s portfolio stood at R2.69-trillion at March 2025. The Isibaya schedule shows roughly R94bn committed and R88bn invested – about 3.3% of the total fund. Small enough that nobody’s pension collapses tomorrow; large enough that it deserves professional discipline rather than simple handwaving.

Then comes the part that should end careers. The updated schedule lists 15 investments with an IRR of -100%. Not poor performers. Not write-downs. Zeros – no proceeds, no residual value, nothing. The rollcall includes Amalooloo, Berlin Beef, Concor, Educor, Ekuzeni, Independent Media, LA Crushers, Musa, Naturecell, Solar Cap – Orange, Urban Lifestyle, VIA Bounty, Yalu, Bayport and S&S Refinery. Combined investment: about R4.45bn.

That is not huge in the Isibaya book itself – these wipe-outs constitute about 5.1% of it. Losses are expected in a high-risk portfolio, but zero recovery across so many investments is an achievement.

And there is an additional question: what does the PIC do when the investment goes palpably bad? 

Exhibit A here is one of the names on the -100% list: Independent Media. In 2013, the GEPF put roughly R1.27bn behind the Sekunjalo consortium’s purchase of Independent Media from its Irish owners – about R500m for a 25% equity stake, the rest as debt. The GEPF’s own annual reports recorded a guarantee from Sekunjalo and a pledge and cession of shares. The pension fund, in other words, held the keys. If the borrower stopped paying, the lender could take the shares, take over the company, and hand the Cape Times, The Star, and the rest of the stable, to owners who might actually run them properly.

The borrower did stop paying. The loan was not serviced; interest capitalised. By late 2018, the Mpati inquiry into the PIC heard the debt had swollen to R1.35bn, perhaps closer to R1.5bn. At this point, a secured creditor normally does the boring, brutal, ordinary thing: it declares default, enforces the pledge, and puts the asset into new hands. Newspapers were a declining business, certainly, but a declining business is not a worthless one – mastheads, properties, presses and subscribers all fetch a price, especially when seized early rather than after years of value has leaked out the side.

The PIC did none of this at the moment it mattered. By then, it had already “invested” another R4.3bn in a different Sekunjalo company, Ayo Technology Solutions, ahead of its December 2017 listing. That went south, too. Surprise! Incredibly, the PIC then entertained a proposal to swap its Independent Media claim for shares in Sagarmatha – a company whose attempted JSE listing collapsed – which is rather like accepting payment of a gambling debt in lottery tickets.

A duty of competence

In its response to the IRR disclosure, the South African Federation of Trade Unions (Saftu) put out a statement saying the fund’s performance was evidence of “failed capitalist speculation”. Saftu demanded forensic investigations, publication of due diligence reports, prosecution where misconduct occurred, recovery of funds lost to fraud or gross negligence, and a review of the developmental criteria. Not entirely wrong, it must be said.

Where Saftu does go wrong is the cure. Its instinct is to redirect workers’ money towards worker takeovers and worker-controlled enterprises. There is nothing inherently wrong with worker ownership – properly capitalised and competently run, it is simply another form of private ownership. 

It does not abolish risk, and does not make obsolete machinery modern, conjure customers, or persuade Eskom to be reasonable. If worker-controlled becomes the next protected category for soft, undisciplined public money, we will rerun this exact disaster in a different ideological costume – and the workers will pay for the sequel, too.

A serious Isibaya would still invest in infrastructure, industrial capacity, housing, energy and empowerment. But it would do so as an owner of capital, not as a political wishing well.

It would also disclose like an institution that expects to be judged. Not every commercial term can be public, but the public should know, at the portfolio level, the amounts invested, current values, proceeds, impairments, arrears and recoveries. Which positions are debt and which are equity. Which is rescue finance. Which have breached covenants. How fast the intervention came, how much was clawed back, and who was held responsible.

The PIC manages other people’s money; its first duty is not to sound noble but to be competent. And this is why R4.45bn matters even on a R2.69-trillion balance sheet. The danger is not imminent insolvency; the GEPF will be fine tomorrow. The danger is a culture in which the denominator is large enough to hide the bodies.

The PIC’s effort in developmental finance has not failed because it invested in capitalism. It failed because it didn’t invest nearly enough of it.

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