Biggest Fund Manager Lifts South African Economy for Returns

The Public Investment Corp., South Africa’s 1.6 trillion rand ($150 billion) pension fund manager, plans to improve returns by investing to reinvigorate the flagging economy it dominates, Chief Investment Officer Dan Matjila said.

The average annual rate of return for Africa’s biggest fund manager should reach 18 percent to 20 percent over the next five years from about 16 percent over the past decade, Matjila said in an interview at Bloomberg’s offices in Johannesburg yesterday. Matjila, 52, said he would like to double the share of funds allocated to other African countries to 10 percent of its portfolio and allot a similar proportion to “developmental investments,” which range from education to energy.

“The strategy going forward is how do you invest wisely in the economy so you can catalyze the growth that is needed for the growth of our assets under management,” Matjila said. He said that economic growth needs to reach 4 percent for the PIC to hit its target. “The size of the assets that we manage account for almost one third of GDP, so we have huge influence.”

With government workers’ pensions making up 90 percent of the Pretoria-based manager’s funds, the PIC is betting that its emphasis on developing South Africa’s power generation, roads, banks, communications and education will boost the continent’s second-largest economy and improve the returns from the stakes it has in some of the country’s biggest companies, which range from mobile phone company MTN Group Ltd. to mining company Impala Platinum Holdings Ltd.

Poor Infrastructure

About 80 percent of the PIC’s assets under management are invested in companies traded on the Johannesburg Stock Exchange. A permanent replacement for Chief Executive Officer Elias Masilela has not been named since he stepped down in June.

A five-month strike by platinum workers caused the economy to contract in the first quarter of this year. It recovered to expand an annualized 0.6 percent in the second quarter. Gross domestic product has grown an average 3.4 percent per year since 2000.

Inadequate infrastructure and a shortage of skills have held back South Africa’s economy, contributing to a 25.5 percent jobless rate and a curb on power supplies for new projects.

Master’s Work

“If we invest wisely with SA Inc., we should be able to pull this economy out of this 2.5 or 3 percent,” Matjila said. “We will be hitting two birds with one stone. One, we are getting the social impact that we require. And at the same time, we’re getting that benefit in terms of return.”

Having decided to start buying into projects aligned with the government’s developmental objectives 18 months ago, it’ll take a few more years before the PIC can identify how the returns from these differ from those in traditional investments, Matjila said.

“You need to be able to take bets, calculated bets. If you are able to ensure that your bets happen, not by hook or crook or other means, but by just doing the right things, you should come out a winner,” he said in reference to Warren Buffett, a billionaire investor, who acquired one of the largest railroads in the U.S. “Now that’s the master at work.”

Matjila said increasing investments in developmental projects, such as renewable energy, and in the rest of Africa would spur returns.

Bank Loss

“Then we’d be putting the investments on steroids,” he said.

Having bought stakes in Lome, Togo-based Ecobank Transnational Inc. and Lagos-based Dangote Cement Plc, the PIC is seeking holdings in other companies with a similar reach, Matjila said. Both companies operate across the African continent.

“We like those companies, which have the potential of developing into pan-African champions,” he said.

The PIC will put more pressure on companies to improve governance to curb excessive executive pay and avert future failures such as this month’s collapse of African Bank Investments Ltd., in which the fund manager had a 12 percent stake in according to data compiled by Bloomberg, Matjila said.

“We were extremely, extremely unhappy. It’s totally unacceptable,” Matjila said of African Bank’s disclosure that it would make a record loss and needed to raise 8.5 billion rand, which triggered a more than 95 percent fall in its stock over three days. “I can’t say it’s over, this is the last one we’ll see, but I think people have woken up to the fact that care must be taken, risk must be managed.”

Before it's here, it's on the Bloomberg Terminal.