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Pension Funds

South African fund ‘perturbed’ over manager’s stock transaction

Officials of the Government Employees Pension Fund, Pretoria, South Africa, expressed concern over a transaction by money manager Public Investment Corp., which resulted in the suspension of two PIC executives.

The 1.8 trillion South African rand ($130.3 billion) GEPF said in a statement on its website that it is "extremely perturbed" by a PIC announcement that it has suspended Fidelis Madavo, executive head of listed investments, and Victor Seanie, assistant portfolio manager. PIC manages 87% of GEPF's assets, according to the fund's 2017-'18 annual report.

A separate PIC statement said the suspensions relate to an Ayo Technology Solutions transaction.

A "preliminary report clearly reflects a blatant flouting of governance and approval processes of the PIC. Employees of the PIC have also been implicated in these irregularities," said PIC's statement. The manager said it "continues to uphold good corporate governance and will do everything in its power to restore the integrity of the institution."

Last year, the PIC spent 4.3 billion rand ($309 million) to back Ayo's initial public offering, valuing Ayo at 14.8 billion rand even though its assets were estimated at 292 million rand.

The GEPF statement said PIC invested in Ayo Technology Solutions, an African technology firm, as part of its listed portfolio mandate. "Thus at the time of its listing, the investment in Ayo fell outside of the unlisted investment portfolio within which there are set governance processes and there are limits set for the PIC to engage the GEPF," said GEPF's statement.

While the total unlisted portfolio accounts for less than 5% of GEPF's total assets, "it represents a significant amount of funds." GEPF's investments aim to contribute to South Africa's real economy and to "drive transformation but still aiming to realize (a) main objective of maximizing returns. When the actions of officials bring this intention into question, it undermines the objective to invest in the real economy of the country and may lead to a review that may deprive the economy of greatly needed investment," said the statement.

Further details could not be learned immediately.

"The PIC had assured the GEPF on numerous occasions and in correspondence that correct governance processes were followed with respect to the Ayo Technology Solutions transaction," the fund said in its statement. "The GEPF views this as a serious breach of trust."

GEPF wants PIC's board to "urgently finalize its investigations of alleged impropriety with respect to the Ayo transaction and others and take appropriate action where it is warranted." However, it said PIC's overall performance remains positive and in line with agreed criteria. GEPF continues to "heighten its monitoring and oversight," it added in the statement.

A spokesman for PIC referred questions to the manager's chairman, Mondli Gungubele, who is also deputy minister of finance for South Africa. Mr. Gungubele's adviser could not be reached for comment.

Bloomberg contributed to this story.