GEPF invests responsibly
GEPF exists to provide and pay benefits when due to public servants who are members as well as retirees. The GEPF would like to assure its members and pensioners that their pension benefits are safe. Members and pensioners are reminded that their benefits are paid in terms on the rules of the Fund and are not directly dependent on contributions by themselves and the employer and its investments. They should therefore not focus inordinately on the ordinary and normal fluctuations of the Fund’s investments, which is of greater interest to the Board of Trustees and the Minister of Finance.
In making investment decisions, the Fund’s investment manager, PIC is guided by a mandate provided by GEPF that outlines which type of investments can be made, the percentage allocation for each asset class, benchmarks and performance targets, among other guidelines.
To ensure that the Fund keeps to its objective of paying benefits to members and beneficiaries, a number of mechanisms are in place to ensure that the PIC acts within its mandate. GEPF’s investment policy and strategy is reviewed and updated regularly in line with GEPF’s Asset Liability Model. This review is carried out in consultation with the Minister of Finance in terms of section 6(7) of the GEP Law and Rules.
In addition, the GEPF has a Responsible Investment policy as well as a Developmental Investment policy. The Responsible Investment (RI) policy is an overarching strategy aimed at integrating environmental, social and governance issues into investment decisions and ownership practices. The RI policy underpins all GEPF investments. The Developmental Investment (DI) policy focuses on targeted investments that contribute to positive economic, social and environmental outcomes for South Africa, while earning good returns for members. The DI policy is the foundation of the GEPF’s investments in economic infrastructure, social infrastructure, environmental infrastructure and priority sectors that generate job creation.
GEPF is required to invest 90% of its assets in South Africa, and as such remains the single largest investor in the Johannesburg Stock Exchange (JSE). It has an international allocation limit of 5% in the rest of Africa and 5% elsewhere internationally.
The PIC makes investments in all asset classes guided by the Fund’s investment policies and mandates using robust and rigorous investment analysis based on sound investment philosophy, investment processes executed by qualified and experienced investment professionals.
With regard to the investments such as Sanral and Eskom bonds, the PIC has a mandate from the GEPF to invest in the bonds included in the Bond Exchange of South Africa’s All Bond Index (ALBI), within specified risk parameters including a minimum rating of BBB. To the extent that these bonds are included in the ALBI, and they meet the minimum rating criteria, they can be included in the GEPF portfolio.
Total exposure to any single bond issuer is subject to restrictions stipulated in the investment mandate. For example, not more than 5% of the total bond portfolio can be invested in bonds issued by an A-rated issuer, and not more than 2% can be invested in bonds issued by a BBB-rated issuer.
These are some of the limits in place to mitigate the portfolio’s credit risk. An additional consideration is that investments in Sanral and Eskom are investments in the infrastructure on which the South African economy depends
All investments that the Fund makes individually only constitute a small percentage of the GEPF’s total investment portfolio. Although the GEPF and PIC do not make any investment expecting to lose money and or not receive a good return, individual investments are therefore not a significant investment.
The Fund’s risk management policy and framework provides the necessary processes to ensure the sustainability of the Fund. The mandate and responsibility of GEPF’s Board of Trustees is contained in the GEP Law and Rules that set out its fiduciary responsibilities to members, pensioners and beneficiaries, and which calls upon trustees to ensure effective and efficient administration of the Fund.
GEPF is mandated to protect the members’ benefits as highlighted by the investment performance of the Fund in the past ten years which shows good standing. The assets of the Fund have grown from R416 billion to R1 591 billion from 2005 to 2015.
The Fund’s ten-year investment performance is evidence that the Board of Trustees, through a good investment strategy with the Public Investment Corporation (PIC) is monitoring and directing the Fund’s assets in a professional manner.
It is also important to note that in any investment environment, certain investments will achieve above expectation and others will not reach their targets, but the Fund’s overall investment performance over the last few years speaks for itself. While it is the task and responsibility of the PIC to focus on each and every investment to ensure a positive outcome, and for the Board of Trustees to monitor this, members and pensioners need not focus too much on them.
During the past decade the Board of Trustees has granted pension increases which have kept up with inflation resulting in more than 400 000 pensioners’ buying power being protected.
These pension increases need to be viewed in the context of the Fund’s Rules, which state that increases only need to be 75% of the change of the Consumer Price Index. Such adjustments, and the inclusion of additional benefits such as the Funeral Benefit, have only been possible because the necessary investment goals have been reached. In addition, GEPF is a defined benefits pension fund and therefore has very strict regulations governing the financial liability to its members and pensioners. The primary role of the GEPF is to protect the wealth of our members and pensioners by safeguarding their retirement benefits through proper administration and prudent investment.