AS IT HAPPENED: EX-CEO Dan Matjila says govt interference compromised PIC

Matjila has wrapped up day two of his testimony. 

The former CEO highlighted that under his leadership the asset manager performed well, but that the organisation's independence was compromised through interference by government.

The commission adjourns for the day and will resume at 09:30 on Wednesday.

PIC CEO’s audit showed no proof Matjila got R2.5m VBS loan

A lifestyle audit of Daniel Matjila, the former head of the Public Investment Corporation (PIC), showed no evidence that he took out an irregular loan from failed South African lender VBS Mutual Bank, a commission of inquiry heard.

Matjila, who is testifying before the ongoing probe into allegations of wrongdoing at the PIC, was accused by a politician of borrowing R2.5m from the bank, which has been linked to various corruption scandals. Matjila has denied the allegation, evidence leader Jannie Lubbe told the inquiry on Tuesday.

The inquiry is into whether the fund, which oversees about $150 billion in assets, deviated from its mission to best safeguard pensions for more than 1.2 million South African state workers. The ongoing inquiry has heard from about 70 witnesses - several of whom flagged Matjila himself as playing a key role in approving questionable deals, which he denies.

Auditors at PwC are scheduled to present their findings of the lifestyle audit, which looked at other people involved with PIC, to the inquiry next week. The commission’s forensic team will also complete an independent investigation into the allegations, Lubbe said.

PIC informed Lubbe a few weeks ago of a report by Nexus Forensic Services that said Matjila got the alleged facility. Bantu Holomisa, the leader of the United Democratic Movement party, sent an email to Lubbe on Monday over the report.

Matjila felt that the PIC was being captured and the agents of capture were both internal and external.

Externally by new Treasury leadership and internally by a faction of exco and some non-executive directors.

"It is clear that the PIC has been infiltrated by the forces that sought to destabilise it," Matjila said.

he added that leaks to the media of PIC's confidential information was an effort to destabilise the PIC and culminated in his removal from the organisation.

Matjila speaks on the period between March 2017 and November 2018 - under Finance Minister Malusi Gigaba and Depuy Finance Minister Sfiso Buthelezi. He describes it as a period of instability at the PIC. There were divisions in exco forming.

"I knew that this development would impact on me at a personal level, that the gloves were coming off so to speak."

He also received a tipoff that there was a plan to remove him as PIC CEO, in a secret meeting on the sidelines of the WEF conference in Durban on May 5, 2017.

He discussed this with the former chairperson Mcebisi Jonas - he shared intentions to resign because he felt the PIC had lost its innocence and he did not see the way out or be party to the undoing of an enormous amount of work in building the institution. 

He said that he stayed after Jonas assured him, things would change.

Matjila believes in a regulated entity like the PIC, the biggest involvement by the minister should be to see if the operations are being exercised sustainably and if the organisation is delivering on its mandate.

Matjila explains listed companies are expected to develop a clear remuneration policy of executives to be approved by shareholders at an AGM. The implementation of the policy is left to board of directors.

Matjila assumes the same applies in the PIC, especially in terms of human capital management.

But Matjila said the minister wanted to approve something like remunerations- which created a "difficult environment" in the organisation.

During the period between December 2015 to March 2017 - under Finance Minister Pravin Gordhan and Mcebisi Jonas was "fairly stable" too.

The replacement of Nene with Gordhan did not have a significant impact on the PIC as the chairman- remained the same.

However there was some Treasury directives issued in terms of the PFMA that had material impact for the PIC operations.

PIC fared well during Nene period

During the period of May 2014 - December 2015, with Finance Minister Nhlanhla Nene and Deputy Finance Minister Mcebisi Jonas, as there was a stable board which drove good governance. "There was a lack of interference in the day to day running of the organisation," Matjila says.

Client portfolios also performed well, there were strong social returns in terms of jobs and transformation initiatives, he added.

Matjila says it is challenging that the shareholder's representative is the deputy minister of finance.

"The fact that the PIC is chaired by a politician and also the shareholder to some extent is a politician representative is problematic, especially in the past few years that there have been Cabinet reshuffles."

Matjila says, the Cabinet reshuffles which have changed the head of Treasury has impacted the PIC negatively.

"There will be no chairman for a while until the chairman is appointed by the minister. Unfortunately it is an automatic process," Matjila said.

The deputy finance minister does not automatically become chairperson of the board. the name for chairperson must first be submitted to Cabinet. This process could take months. "In that period the PIC will be in limbo for a while."

Matjila is hopeful the commission will be able to assist in changing the PIC and putting it in a space in which it will not be vulnerable to challenges and issues and can contribute to the economy.

He tells Mpati that he thinks the attacks on the PIC are not justified.

The PIC, audited by the Auditor General has consistently received clean audits.

The Financial Sector Conduct Authority has also conducted a review of the PIC in terms of its compliance with the FAIS Act, which was satisfactory.

The PIC also received a positive report from the FIC, apart from its issue with registration. The PIC will make efforts to register on time, says Matjila.

Another big strategic intervention was with Eskom, when the power utility was facing liquidity challenges.

The PIC was requested to mitigate the problem over a period of 30 days.

The PIC was paid back, he confirms.

On MTN, Matjila says following regulatory issues in Nigeria the company's shares fell.

The PIC took advantage of this and bought a significant amount of shares in MTN- moving from 17% to 26%. The share price has since increased by 20%. 

Matjila shares the rationale on the AYO transaction, which took place in 2017.

Matjila said R9bn was invested, the investment gain was R34bn. The dividend received was R3bn.

The net return was about R20bn.

Matjila says that the PIC considers the ESG (environmental, social and governance) report of companies before making investments. 

He explains investee companies, especially in the unlisted space, are advised on how to deal with ESG matters to drive sustainability.

They must manage social efforts to drive inclusive growth, he adds.

They are given score guards to ensure progress in ESG efforts.

Matjila provides more evidence on transformation efforts by the PIC.

Black asset managers have grown 10 times, Matjila says. 

Some have grown from nothing to significant players in the asset management space.

Matjila says in 2010, the PIC was put under pressure by Gupta-owned Oakbay to invest in its uranium miner- uranium 1.

"We put up a big fight, and eventually we won because we did not invest in uranium 1," Matjila says.

He adds that Uranium 1 was listed on the JSE as Oakbay Resources, which later ran into problems.

Matjila said that the PIC was approached by Trillian and Regiments separately.

Trillian had asked the PIC to participate in a private placement of Transnet bonds to the tune of R6bn to R9bn.

regiments had asked the PIC to participate in the optimisation of the Land Bank balance sheet for a figure of R10bn.

The PIC did not participate. "We did not understand why we needed a middleman in two state-owned entities that have dealt directly with the PIC in the past."

The PIC has participated in a private placement for Transnet before.

The PIC has been the "biggest supporter" of Land Bank. About 60% of its balance sheet is through PIC on behalf of its clients- investments in the fixed income instruments the bank issued.

I do not think it went well with them- Regiments and Trillian- because the minister was told he (Matjila) was not cooperating.

Matjila said the dividend policy is under discussion to make sure dividends are not paid out from management fees.

The PIC has been able to generate a surplus of approximately R400m per year- from 2016-2018.

Matjila said the surplus was generated from a strict financial management programme.

Dividends have been paid to the State, the shareholder, in the past two financial years despite a poor economic environment.

Matjila says that the PIC has been successful in driving transformation in the financial management space.

He adds from unlisted investments jobs have been created, support has been provided to SMMEs, further the PIC has benefitted students through loans too.

There is a policy in place- the politically exposed persons policy. It is within the law - from the Financial Intelligence Centre.

It allows the PIC to do deeper due diligence in participants of transactions to ensure the political exposure risk to the PIC is eliminated, Matjila said.

The inquiry resumes, Matjila shares why a deal-screening committee was established.

There were challenges in that deals were brought forward from politically-connected people.

"Most of them were able to reject upfront, especially when they don't fit the portfolio. But in some instances, they tried to get to lower management to have the deals considered."

The deal-screening committee scrutinises all deals to see which have a high political risk and to whittle out those from politically exposed persons.

In 2015/16, the PIC could see it would face headwinds in economic growth. This is why an application was made to the GEPF to place more weight in private equity investments.

Matjila says that the PIC portfolio is quite big.

He explains the investment strategies in place have delivered.

He adds that the portfolio was mostly cushioned when investments were cheap in 2008/09. When markets turned in 2010, the PIC was able to respond by increasing its position in equities.

Matjila says there is a virtuous cycle- investing in the economy will allow assets to grow.

He believes there is talent in terms of private equity in SA.

There is a misnomer that unlisted investments are risky. But listed investments can be equally risky - as was seen with the collapse of Steinhoff. 

Matjila suggests there is a lack of education about private equity investments. 

Also in terms of the JSE structure- the top 10 companies which account for more than 50% of the market capitalisation are not exposed to the local economy in the true sense.

For example companies like Naspers, Richemont, BAT, AB InBev which have large global exposure and not so much the domestic economy.

Pension funds in SA are invested in the JSE - There are large pools of cash not being exposed to the local economy.

In the last few years the economy has not been growing, but the stock market has been hitting new highs, Matjila explained. There is a disconnect, he added.

The GEPF should be refocusing on adjusting their benchmark to contribute to economic growth. Having investments in unlisted companies can help in this regard, Matjila argued.

Investments in listed companies is limited to those on the JSE, Matjila explained.

Not all sectors are necessarily represented on the JSE - which is why unlisted investments are important, for exposure to assets not represented on the JSE. That way the portfolio is more balanced or will benefit from economic growth.

"The key reason for investing in unlisted investments is that it should be enhancing the portfolio structure."

Matjila says in retrospect, the PIC should establish a new pool of directors independent of the PIC with the requisite skills and experience to be deployed to investee companies.

He warned that the PIC could end up on the wrong side of competition law, as PIC could be seen as a ground for potential collusion if their activities are not managed on the boards of these companies.

Lediga asks if PIC board members should not be on the board of investee companies - Matjila reiterates the PIC must be careful in how it deploys directors to investee companies.

There can be risks of conflict of interest, and create breaches of competition law.

Marcus asks about PIC executives implicated in the VBS scandal.

Matjila said he is very disappointed.

He says he was not aware of anything untoward by the executives Paul Magula and Ernest Nesane. 

Matjila adds that the biggest protection has been process.

If a minister has request - Matjila has always made them aware of the process of the PIC. 

Marcus asks what steps are in place to protect the PIC - particularly in private meetings with ministers who re no the shareholder (Treasury).

Matjila said if a minister called him to a private meeting he would "honour that". Marcus asked why and what measure was taken to protect the integrity of investments and the engagement/ way a discussion or transaction is done.

Matjila responds: "I have been able to protect the organisation. Whether I meet with a minister in private or in the presence of people- it depends on the circumstances.

"I have met ministers with my colleagues for various reasons- they have asked for private meetings. But private meetings do not translate in not doing investment in the way it should be done."

The operating environment in the PIC can be challenging- particularly in the area of non-listed investments, Matjila said.

He adds it has been difficult to manage the environment. 

Matjila said he was "very comfortable" with the structure. "I am convinced it worked exceptionally well."

Marcus says in hindsight  - has reducing the number of directors been an effective decision - given the evidence presented before the commission.

Matjila said he has reservations about some of the evidence which has appeared before the commission. 

"I have a strong belief this model has done well. In my evidence you will see the wheels started to come off in 2017.

"From 2015, ever since we put together the new structure, the PIC was functioning well."

When asked by Marcus if having only two executive directors was too much of a concentration of authority. Matjila said if the delegation of authority was fixed to give executives (with executive powers through delegation of authority) they could still act as executives, without being part of the board.

He said he did not see concentration of power. 

Matjila says reducing the number of non-executive directors improves the dynamics of the board.

Marcus however says this is not necessarily true as the board is fractured with many disputes.

It is not known who put together the ad for CEO.

Matjila said that it is possible the recruitment company in consultation with National Treasury drew up the advert.

Lediga however expresses concerns the requirement of PhD might have scared off people who wanted to apply.

Justice Lex Mpati asks Matjila to confirm that he was not involved in drawing up the advert- to which Matjila agrees.

Lediga asked if one of the job specifications was a PhD.

Matjila said he believes that having a PhD gave him a "nice advantage", which he is happy with because he worked so hard for it.

Lubbe confirms that the requirements were either a masters or a doctorate. 

Matjila said a recruitment company from the private sector was appointed on behalf of government to find a PIC CEO, the advertisement was published in media. All processes were handled by the company including the short-list.

He was told the final short-list included four people, of which he was part.

Matjila was the only internal candidate.

Matjila says as CIO he was responsible for developing and implementing the investment strategy of the PIC. The role of the CEO has authority to approve whatever the CIO does.

This strategy is to be presented to the board for adoption. 

Matjila did not participate in the review - because he felt it was a targeted approach to oust him.