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ANC prescription talk makes fund managers, public service unions nervous

Jan 19 2019 13:15
Khulekani Magubane, Fin24

The ANC election manifesto commitment to investigating prescription on pension funds has financial institutions and public service unions nervous that the party is looking to use pension funds to feed Eskom and other troubled entities.

The Public Servants Association has been locked in a stare-down with Eskom and other state institutions over the idea of bailing Eskom out of its financial troubles by using pension funds for the better part of a year.

Eskom has already received financial assistance from institutions including the China Development Bank and Agence Francaise de Developpement (French Development Agency), and the utility last year asked National Treasury to assume R100bn of its debt.

The ANC manifesto says the party will investigate the introduction of prescribed assets on financial institutions’ funds.

ANC to 'mobilise funds'

"The ANC will mobilise funds within a regulatory framework for socially productive investments – including housing, infrastructure for social and economic development and township and village economy – and job creation, while considering the risk profiles of the affected entities," the manifesto says.

PSA general manager Ivan Fredericks said the union’s management would soon have a meeting with the Federation of Unions of South Africa where the matter of public servants’ pensions would be on the agenda.

"The ANC is mentioning that they will approach the GEPF to use public service money from the pension to assist the country’s economy. We do not want to make assumptions of what they want to do before these bodies are approached formally," said Fredericks.

Fredericks said the PSA had not backed off from its demand that a public servants representative seat be created in the board of the Public Investment Corporation to ensure that public servants and their pensions are protected.

Ashburton Investments’ head of fixed income portfolio management Albert Botha told the 702 Money Show’s host Bruce Whitfield on Monday that giving financial access to troubled entities despite their plight would only serve to delay the inevitable rather than solve the problem.

"If you give mis-priced money to these various SOEs that are struggling, you reduce the policing function and capital function of the financial markets. The market signs that they are unhappy with the management of these entities doesn’t occur. So, the interest rate on Eskom bond never rises because it has excess funds available to it at all times," said Botha.

Botha said prescribed assets interfered with the capital allocation function of markets, distorting asset prices and allocating capital to organisations that may not necessarily deserve the amount of capital that prescription give them access to.

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