South Africa’s biggest asset manager invested R100 million into one company and then realised it was a scam

The Public Investment Corporation (PIC) invested R100 million into Enable Capital before it realised it was a fraudulent scheme, halting future investments. 

This is one example of how the PIC has poorly allocated the money entrusted to it by government employees and others looking to save for retirement. 

The PIC sits on R3.5 trillion worth of assets, much of which comes from the Government Employees Pension Fund (GEPF). 

This makes it an incredibly important financial institution in South Africa, with it being responsible for the well-being of millions of government employees. 

The PIC is mandated to provide a reasonable financial return for its clients and drive socio-economic development in South Africa. 

Apart from the GEPF, the institution also handles money on behalf of the Unemployment Insurance Fund and the Compensation Fund. 

Acting as a “universal owner”, the PIC hold significant stakes in many of South Africa’s largest corporates, including Standard Bank, Shoprite, Clicks, FirstRand, and MTN. 

This part of its portfolio, called the listed component, has historically performed relatively well given its exposure to JSE-listed stocks and the global economy. 

However, its unlisted portfolio has been the source of intense scrutiny given the poor performance of these investments and their links to politically-connected individuals. 

This is where the manager’s mandate to drive development and transformation has been abused to the benefit of a well-connected political elite. 

DA federal finance chairperson Dr Mark Burke described the PIC as one of the last feeding troughs available to corrupt individuals. 

Historically well-run and having avoided the worst of state capture, the PIC sits on a significant amount of cash that bad actors want to get their hands on. 

However, now its poor investment management has come into the spotlight, with increased regulatory scrutiny amid the suspension of its CEO and chief investment officer.

The Financial Sector Conduct Authority has formally begun an investigation into the PIC and whether it has failed in its duty to manage the pensions of millions of government employees. 

Of particular concern is the PIC’s unlisted portfolio, which has been the site of many corrupt deals resulting in the loss of billions of rands. 

Enable Capital

One of the clearest examples of poor investment management from the PIC was its investment in Enable Capital in 2022. 

Enable Capital is a private financial services provider that facilitates short-term bridge financing, supply chain funding, and working capital to subcontractors. 

In particular, Enable focused on subcontractors in the telecommunications and physical infrastructure sectors. 

An example of this was the huge investments into rolling out fibre optic cabling in South Africa. Enable would finance contractors on these projects to help them access material, pay salaries, and perform their work before completion. 

The PIC found the business attractive for investment, offering it exposure to the rapid buildout of fibre optic infrastructure while meeting its mandate to drive transformation. 

In 2022, the PIC formally approved and executed a R100 million investment in Enable. This was after the 2020 Mpati Commission cleaned up the asset manager’s governance.

The Mpati Commission’s recommendations had supposedly been implemented at the time of the investment in Enable, giving regulators and onlookers peace of mind. 

However, the deal quickly became involved in a legal quagmire as allegations of fraud and criminal activity at Enable came to light. 

The PIC halted any future investments into the company, but it had already been defrauded of R100 million before realising it was a scam. 

“We as the Democratic Alliance have been asking for over a year about how such an investment could take place,” Burke told BizNews. 

“How could the deal with Enable Capital occur? It was not even a deal. It was a full-on scam for R100 million of pensioners’ money.” 

Burke said the regulators have been slow to move forward with investigations into the PIC’s investment processes and poor governance.

“How could all of these things happen at a financial services provider? Are the directors and key individuals being held to account? That is now finally happening,” Burke said.