As well as the GEPF approach to consolidate investments domestically, Regulation 28 of the country’s Pension Funds Act, first enacted in 1956 but amended as recently as July, dictates that 55% of occupational retirement plan's (not applying to GEPF) assets are outright mandated to be invested in the domestic markets.
Even thought the GEPF has no mandate by the national government to invest domestically, it has adopted (and goes beyond the domestic allocation benchmarks of) Regulation 28 as "best practice prudential standard."
“South African equities have been very undervalued. Compared to something like the Magnificent Seven (U.S tech) stocks where valuations have been going through the roof, the South African market has been extremely cheap. One obviously has to ask is that a value trap, however we are of the view that there are pockets of value, but broadly our market is reasonably priced,” said Sibiya.
If there's one myth that Sibiya is keen to bust, it is that South Africa — and the continent as a whole — carries an adversely high risk profile.
"Those risks are not as elevated as perceived. Our fund is (heavily) invested in South Africa. Yes, there's risk there, but nothing broke, it's still functioning. We are looking to establish greater awareness that this country is not as risky as many investors and asset allocators think it is,” he said.
GEPF had 2.38 trillion rand ($129 billion) in assets as of March 31, 2024 — up 3% over the year.
GEPF also has a target allocation of 5% to the rest of Africa; only 15% of its portfolio is invested outside of the continent.
High-interest environment
South Africa as a nation has also experienced recent crises such as rolling energy blackouts, and pointedly for an asset owner, rates of interest that currently stand at 7.5%, and have been above 5% since July 2022.
GEPF invests approximately 60% in equities and only 30% in bonds, with the remaining 10% in areas such as cash and real estate. This asset mix presents challenges in a high-interest environment.
“High inflation was a global phenomenon, which then ended up here as well. It had some knock-on effects such as the interest rate hiking, and that depresses equities. As a result of this GEPF has started investing more in bonds, particularly index-linked bonds, and that did cushion some pressure,” Sibiya said.
GEPF also employs a liability-driven investment strategy when managing its portfolio.
While such an approach has proved calamitous in other markets, most notably in the U.K.’s gilts crisis of 2022, Sibiya insists that GEPF’s oversight and asset mix ensures such an event is unlikely to happen with the fund.
“A main difference between LDI strategies in South Africa and the U.K. is that there is not a pure, structured bond portfolio here. So there is space for equities. We do asset and liability modeling, and from that, you get a strategic asset allocation, and then you manage the fund through that,” he said.
Sibiya also explains that because of GEPF’s sheer size in the South African domestic market, it becomes difficult to exact a large-scale active strategy. With this thinking in mind the fund’s LDI has a more passive structure.
Ayo Technologies
GEPF is responsible for planning and setting the investment policy of the pension fund, overseen by Sibiya. The primary asset manager of GEPF is the Public Investment Corp., which is wholly owned by the government.
GEPF and PIC have not always enjoyed a harmonious relationship. In January 2019, GEPF officials expressed concern over a transaction by PIC, in which PIC spent 4.3 billion rand to back the initial public offering of Ayo Technologies, valuing Ayo at 14.8 billion rand even though its assets were estimated at 292 million rand.
Ultimately, the transaction resulted in the suspension of two PIC executives, and the manager itself admitted that “blatant flouting of governance and approval processes” had occurred.
In 2021, the Mpati Commission, a judicial panel created to investigate the PIC, questioned the governance of the division and the bypassing of investment procedures relating to the 144 billion rand Isibaya ESG fund.
For Sibiya, who has been in his role since June 2021, the experience has in the long run led to a better managed PIC and an improved relationship with the GEPF.
“PIC manage our assets, and there’s no view to changing that. We've had a review of the investment management agreement that we have with them to ensure that processes used are more robust going forward."
Since the Ayo Technologies incident, "there are exponentially more measures in place. The governance mechanisms and governance processes between ourselves and the PIC have improved dramatically over the past five years,” Sibiya said.
DEI and ESG
Diversity and inclusion principles are also a key part of decision-making at GEPF. However, it is not necessarily to increase minority representation, but to increase equity of a Black majority impacted by the historic regime of apartheid and its longstanding economic repercussions.
“Within our context in South Africa and its history, such as the inequalities and them being racial in nature, we value the fund's contribution to broader social issues, while also maintaining obligations to meet returns,” Sibiya said.
A key pillar of the GEPF’s responsible investment and DEI strategy is through PIC's Isibaya fund, which invests in initiatives including those relating to Black economic empowerment, renewable energy, healthcare, education, and other infrastructure development projects.
However, the GEPF’s commitment to a net-zero portfolio is more complicated. With such a commitment to domestic investments, it is inevitable that GEPF holds stakes in South Africa’s highly carbon-intensive mining sector.
According to a February presentation by South African economist Hugo Pienaar, the South African mining industry contributed 6% of the country’s total nominal GDP during the first three quarters of 2024, amounting to 433 billion rand.
“The (South African) economy is very mining-based. This places a constraint on any large allocator as you can't just ignore that reality.
“We’re not practicing divestment, however we are engaging with listed mining entities to see if carbon-intensive practices can be reduced, and are they introducing net-zero plans. As a fund, we also invest in renewables, and it becomes an offset (to mining),” Sibiya said.
GEPF is also a founding member of the UN Principles for Responsible Investment, an international sustainable investment initiative in existence since 2006.
In its 2024 UN PRI report, the GEPF scored highly on areas including policy governance and strategy and listed equities. The GEPF achieved scores in these areas ranging from 85 - 91%, above the PRI median range of 40 – 65%.
