The Investment Committee of the Unemployment Insurance Fund (UIF) Board met with executives of the Public Investment Corporation (PIC) on Friday 25 August 2023 to conduct a review of the UIF’s investment portfolio for the period April to June 2023, the first quarter of the current financial year.
By the close of the previous financial year on 31 March 2023, the UIF, the second largest client of the PIC with a portfolio of assets 5.14% of total Assets under Management (AuM), grew by 13% to R135 billion. This is the largest percentage growth margin amongst all the PIC’s public sector clients.
The UIF portfolio has 92.05% invested in domestic assets and the rest in foreign equities. Listed Investments constitute 89.9% of the portfolio, with Socially Responsible Investments (SRI) making up 10.13%.
The UIF’s higher exposure to domestic bonds and listed equities positively contributed to robust growth in the Fund’s investments. The UIF portfolio has largely recovered from the emergency selloff in nominal bonds to finance the UIF COVID-19 Temporary Employer/Employee Relief Scheme (TERS) of R64 billion.
Since its inception the Internal Rates of Return (IRR) has a negative 5.12% due to several developmental or impact investments in the Fund’s Unlisted portfolio underperforming or being in distress, and this remains a concern for the Investment Committee. The healthcare and retail sectors contribute two-thirds of total impairments.
According to Investment Committee Chairperson, Ogalaletseng Gaarekwe these are historic investments dating back as far as 2015. There has not been any new investment by the PIC on behalf of the UIF in the SRI or Unlisted Investments since 2019. Gaarekwe says many of these investments were the subject of the investigation by the Mpati Commission of Inquiry and require remedial actions or steps to legally recover assets.
“The Investment Committee is satisfied with the work, and regular reporting done by a team of turn-around and value-add (TOVA) specialists employed by the PIC to analyse and monitor these investments. Of the 12 unlisted investee companies in distress, three are in liquidation, whilst another three have been placed in business rescue. A further two are under legal dispute and the remaining four are being restructured and turned around,” says Gaarekwe.
Alongside sustainable financial returns, there are developmental or impact investments designed to produce socio-economic returns that include job creation, empowering and funding black firms, and providing essential infrastructure (housing, accommodation, healthcare services, etc.). Job retention and job preservation are priorities for the UIF and the PIC when investee companies become distressed, and the TOVA team has done commendable work to minimise job losses and preserve value in some of the distressed assets.
Four exciting property investments in the UIF portfolio will be executed in the current financial year and over the medium term. A total of R459 million has been earmarked for the construction of student accommodation that will provide 5,352 beds and state-of-the-art learning facilities in four tertiary education nodal points across the country. These construction projects will create thousands of jobs over the medium term and will produce lasting housing and education infrastructure for underprivileged university students.
The UIF has partnered with the Industrial Development Corporation (IDC) to establish a R5 billion UIF Fund II which is being co-managed by the PIC. The IDC has been marketing the fund that focuses on job creation and job retention initiatives by providing senior debt facilities (loans) to qualifying applicants across all economic sectors, as illustrated below.
In addition to UIF Fund II’s approval of investments totaling R3.814 billion to qualifying firms in the most recent round of funding, the following transactions took place:
UIF Commissioner Teboho Maruping has expressed his satisfaction with the manner in which the Investment Committee has ensured accountability from the PIC. “The investment Committee plays a critical role in ensuring accountability by closely reviewing the UIF investment portfolio, risks, and controls,” says Maruping.
The meeting ended with the Investment Committee expressing its support and satisfaction with how the PIC has managed the UIF portfolio.
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Issued by: Department of Employment and Labour
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