South Africa’s biggest asset manager owns R1 trillion of government debt

Deputy Finance Minister David Masondo recently revealed that the Public Investment Corporation (PIC) is exposed to R1 trillion in government debt.

Masondo, who also chairs the PIC, revealed this figure in a recent presentation to the Standing Committee on Public Accounts (Scopa).

Established in 1911, the PIC is an asset management firm wholly owned by the South African government. Its clients are mostly public sector entities, which focus on the provision of social security. 

Among these clients are the Government Employees Pension Fund (GEPF), the largest pension fund in South Africa, and the Unemployment Insurance Fund (UIF).

The PIC invests in both listed and unlisted securities, ranking amongst the best and successful asset management firms in the world, and is by far the largest in Africa.

As of 14 July 2025, the PIC’s assets under management (AUM) totalled R3.2 trillion. This means government bonds constitute nearly a third of the PIC’s assets.

Masondo explained that the PIC’s R1 trillion exposure to government debt includes debt from state-owned enterprises, such as Eskom and Transnet, which constitutes R100 billion of the PIC’s investment in government bonds.

He further stated that, of the PIC’s R1 trillion exposure to government debt, approximately R840 billion is in government bonds, which include both nominal and inflation-linked bonds.

The deputy minister explained that the PIC was founded in 1911 as the Public Debt Commissioners to raise government debt. While the PIC’s role has since expanded, this aspect of its founding is still in place.

However, he said the asset manager still prioritises generating strong returns to ensure its clients, who include government employees, are sufficiently protected for retirement.

PIC chief investment officer Kabelo Rikhotso revealed in the Scopa presentation that the asset manager’s AUM had grown by 13% in the year through March 2025. Since 2021, the PIC’s AUM has grown by around 38%.

Big risk to South Africa’s financial sector

The South African Reserve Bank recently warned that local banks and asset managers are at risk of destabilising the country’s financial system through their significant exposure to government debt.

The government’s financial health has steadily deteriorated over the past decade, with the trend accelerating in recent years as it takes on more debt to cover its spending. 

South Africa last posted a full budget surplus in the 2007/2008 financial year, after which it has run a deficit for 16 consecutive years.

This has led to the country’s debt skyrocketing to its current level of R5.21 trillion, equivalent to 73.9% of GDP.

The government spends R1.2 billion a day servicing this debt, and interest payments on its loans are one of the largest expenditure items in the budget, exceeding basic education and health.

“The domestic financial sector has increasingly absorbed these bonds amid the steady decline in non-resident investors’ holdings in recent years,” the Reserve Bank said. 

While this is not inherently a problem, the sheer scale at which the government has issued debt and the amount local financial institutions have taken on poses a significant risk.

This is because, in effect, South Africa’s financial system is increasingly exposed to a single common risk – the government.

A higher concentration of government bonds on domestic financial institutions’ balance sheets also hinders the domestic financial system’s capacity to absorb financial shocks. 

It may also lead to increased episodes of high volatility and low liquidity in the domestic bond market, impairing price discovery and deteriorating trading conditions in the rest of the financial market. 

In turn, this would reduce the overall resilience of the domestic financial system.

One of the reasons for local financial institutions’ significant exposure to government debt is that foreign investors have steadily reduced their exposure to South African assets over the past few decades.

This was primarily driven by major rating agencies demoting the country to below-investment-grade, or so-called “junk status”.

As South Africa has descended deeper into so-called ‘junk’ status, foreign investors have been consistent sellers of local stocks and bonds for the past decade.

As a result, the domestic financial sector has continued to absorb much of the new bond issuance over the past year, increasing the exposure of local financial institutions to government debt.