commission of inquiry of the public investment … · 22/05/2019 · 10 mr ian sinton: we...

COMMISSION OF INQUIRY OF THE PUBLIC INVESTMENT CORPORATION

HELD AT

TSHWANE, PRETORIA

10

22 MAY 2019

DAY 39

20

22 MAY 2019 – DAY 39

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PROCEEDINGS HELD ON 22 MAY 2019

CHAIRPERSON: Good morn ing Adv Lubbe and the res t o f the house.

ADV JANNIE LUBBE SC: Good morn ing Mr Commiss ioner, members .

We are ready to p roceed Mr Commiss ioner w i th our nex t w i tness . The

wi tness is Mr Ian S in ton he ’s f rom Standard Bank . He was present

yes terday when the two peop le f rom the PIC tes t i f ied about the SA

Home Loans t ransac t ion . As a resu l t o f tha t ev idence we consu l ted h im

and he prov ided us w i th a s ta tement . In h is ev idence today he w i l l

imp l i ca te four peop le , they have been not i f ied o f tha t in te rms o f the

ru les and my co l league Adv Khooe w i l l l ead h is ev idence. 10

CHAIRPERSON: Mr S in ton your fu l l names a re Ian Hamish Scot t

S in ton am I cor rec t?

MR IAN SINTON: That i s cor rec t .

CHAIRPERSON: Do you have any ob jec t ion to tak ing the prescr ibed

oa th?

MR IAN SINTON: I have none.

CHAIRPERSON: Do you then swear the ev idence you ’ re about to g i ve

w i l l be the t ru th , the who le t ru th and no th ing bu t the t ru th , ra ise your

r igh t hand and say so he lp me God.

MR IAN SINTON: So he lp me God. 20

CHAIRPERSON: Thank you. You may be seated .

MS GILL MARCUS: Sor ry be fore we s ta r t Adv Lubbe you ment ioned

tha t the peop le ind ica ted in Mr S in ton ’s tes t imony today have been

not i f ied , a re any o f them here?

ADV JANNIE LUBBE SC : No, thank you Mr Commiss ioner.

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MS GILL MARCUS: Okay.

ADV NKAISENG KHOOE: Good morn ing Mr Commiss ioner, members .

CHAIRPERSON: Sor ry we won ’ t fa l l fou l o f any o f our regu la t ions w i l l

we?

ADV JANNIE LUBBE SC : No Mr Commiss ioner.

CHAIRPERSON: I s there no t ime w i th in wh ich or be fore wh ich they

shou ld be in fo rmed o r adv ised?

ADV JANNIE LUBBE SC: I t ’s no t peremptory, they s t i l l have the

oppor tun i t y to come and tes t i f y o r to app ly fo r c ross -examinat ion .

CHAIRPERSON: As long as you ’ re sure we won ’ t fa l l fou l o f the 10

regu la t ions then i t ’s f ine .

ADV JANNIE LUBBE SC: I ’m comfor tab le w i th tha t , thank you Mr

Commiss ioner.

CHAIRPERSON: Yes Ms Khooe.

ADV NKAISENG KHOOE: Thank you Commiss ioner. Good morn ing

Commiss ioner and members , as Sen ior Counc i l has a l ready sa id Mr Ian

S in ton was present in the Commiss ion yes terday when Mr Roy Rad jhar

and Mr Bened ic t Monga lo tes t i f ied about the SA Home Loans

t ransac t ion . Mr S in ton has prepared a s ta tement and he w i l l be go ing

th rough i t r igh t now. Mr S in ton am I cor rec t tha t you have p rov ided a 20

s ta tement w i thout any coerc ion?

MR IAN SINTON: That i s cor rec t .

ADV NKAISENG KHOOE: You may s ta r t a t paragraph 1 o f your

s ta tement , thank you .

MR IAN SINTON: Thank you . In paragraph 1 I make the po in t tha t

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employed by the Standard Bank o f South Af r i ca . That I was un t i l June

o f las t year the Group Genera l Counse l respons ib le fo r the

management o f Lega l R isk fo r the Group th roughout the g lobe. I

reached the compulsory re t i rement age in June las t year and I was

re ta ined then as Spec ia l Counse l dea l ing w i th spec i f i c lega l r i sk i ssues

and tha t ’s the ro le I p lay today.

In paragraph 2 I con f i rm tha t I ’ ve been author ised to make th is

s ta tement and to appear here .

And in paragraph 3 I descr ibe the c i rcumstances under wh ich I came to

be g iv ing th is ev idence, namely tha t I observed, I fo l lowed some of 10

these proceed ings las t week when I heard i t sa id tha t i ssues per ta in ing

to SA Home Loans wou ld be the sub jec t mat te r o f a par t i cu la r sess ion

th is week and I enqu i red o f the ev idence leader as to when tha t wou ld

be because Standard Bank owns 50% of SA Home Loans . We are a l so

a subs tan t ia l c red i to r o f SA Home Loans and we have en t rus ted b i l l i ons

o f Rands wor th o f our own home loan book to SA Home Loans to

manage.

So we have a rea l in te res t in what goes on a t SA Home Loans so I

con tac ted the ev idence leader and asked when th is ev idence wou ld be

led and he in fo rmed me i t was fo r ye s terday and he inv i t ed me to be 20

present . So I a t tended and a f te r I had heard the ev idence led he asked

me i f there ’s any in fo rmat ion tha t I thought migh t be o f in te res t to the

Commiss ion bu t wh ich hadn ’ t been inc luded in a t leas t the ora l par t o f

what was presented, I c lear ly had no ins igh t in to the ac tua l document

o r i t s annexures bu t I d id fee l there was some in fo rmat ion tha t cou ld

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have been made ava i lab le yes terday tha t wasn ’ t and I cou ld be o f

ass is tance to th is Commiss ion and i t s te rms o f re fe rence an d I was

asked by the ev idence leader i f I cou ld reduce tha t to wr i t ing and

appear here today and tha t ’s why I ’m here .

MR EMMANUEL LEDIGA: Morn ing Mr S in ton .

MR IAN SINTON: Good morn ing Mr Commiss ioner.

MR EMMANUEL LEDIGA: Jus t a ques t ion , the P IC has co mmi t ted

someth ing l i ke R9 b i l l i on to the company, what i s the S tandard Banks ’

commi tment there?

MR IAN SINTON: We obv ious ly have 50% shareho ld ing , I wou ld have 10

to come back w i th the exac t f igures bu t in te rms o f loan fund ing i t ’s

about R3 b i l l i on and in t erms o f assets under management i t ’s about

R40 b i l l i on .

MR EMMANUEL LEDIGA: I was more look ing a t the S tandard Bank

cont r ibu t ion in te rms o f lend ing to the company?

MR IAN SINTON: I th ink in loans , I ’ l l come back w i th the cor rec t

number bu t i t ’s be tween R3 and R4 b i l l i on .

MR EMMANUEL LEDIGA: R4 b i l l i on?

MR IAN SINTON: Yes.

MR EMMANUEL LEDIGA: Okay. 20

MR IAN SINTON: In te rms o f the corpora te s t ruc ture wh ich you might

we l l be fami l ia r SAHL Inves tment Ho ld ings Propr ie ta ry L im i ted is an

inves tment ho ld ing c ompany and i t s p r inc ip le opera t ing subs id ia ry i s SA

Home Loans Propr ie ta ry L imi ted . I ’m sure you ’ l l a lso be aware SA

Home Loans conduc ts bus iness as i t s name in fe rs in the home loan

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market in South A f r i ca . I t competes w i th a l l the banks under tha t b rand

i nc lud ing obv ious ly S tandard Bank bu t i t ’s the way i t ra ises funds in

order to on - lend to the home loan marke t i s to fo rm sor t o f inso lvency

remote spec ia l purpose veh ic les wh ich then issue commerc ia l paper to

the debt cap i ta l marke ts . In the inves tors in those marke ts a re

t yp ica l l y asset managers , pens ion funds , p rov iden t funds and the l i ke

who want to inves t in debt ins t ruments and so the SA Home Loans

issues them wi th commerc ia l paper and the funds tha t a re ra ised

th rough tha t mechan ism are then on - len t to buyers o f homes, to f inance

home purchases . 10

I th ink we ’ve owned our s take in SA Home Loans now fo r more than two

decades I th ink . I t ’s a h igh ly success fu l bus iness , i t competes very

we l l and i t ’s very we l l - regarded both in the deb t cap i ta l marke ts i .e .

inves tors have a lo t o f fa i th in the management and the way they do

bus iness and i t a lso I th ink i s we l l - regarded in the home loan sec tor.

I t ’s background wh ich I th ink i s re levant to the Commiss ion is tha t un t i l ,

wel l in the per iod lead ing up to the g loba l f inanc ia l c r i s is in 2008 and

2009 SA Home Loans , and I ’ l l use tha t fo r the g roup gener ica l l y, had

on ly two shareho lders be ing Standard Bank one and the o ther was JP

Morgan, tha t ’s the Amer ican g loba l bank tha t ’s headquar te red in the 20

Uni ted Sta tes .

And when the c r is is , the f inanc ia l c r i s is o f 2008/2009 occur red

obv ious ly inves tors in the debt cap i ta l marke ts w i thdrew in a sense tha t

they were re luc tan t to take on exposures because o f the tu rmoi l and

uncer ta in t y in the marke ts and th is c rea ted a pred i cament fo r SA Home

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Loans because obv ious ly commerc ia l paper was issued fo r f i xed te rms

and as the te rm, as they mature you have to then ra ise more money to

rep lace the debt as i t were so SA Home Loans was faced w i th a

p red icament o f hav ing reduced inves tor appet i te fo r i t s commerc ia l

paper a t a t ime when i t was be ing fo rced to repay loans .

I t there fore tu rned to i t s shareho lders a t the t ime and asked us to

ass is t w i th l iqu id i t y jus t to ensure tha t i t de fau l t in any o f i t s

ob l iga t ions . S tandard Bank , and o bv ious ly the re was an amount

requ i red , S tandard Bank cont r ibu ted i t s share and JP Morgan dec l ined

to . JP Morgan ’s v iew was tha t g loba l l y they had found themse lves in 10

the f inanc ia l c r i s is because o f exposure to the domest ic home loan

marke t and there fore t hey had no appe t i te whatsoever to inc rease in

the exposure to tha t marke t and there fo re wou ld no t ass is t SA Home

Loans . That fo rced us as S tandard Bank to then take up the i r share o f

the ass is tance requ i red .

SA Home Loans obv ious ly weathered the s to rm a nd emerged as

s t ronger and be t te r bus iness bu t we agreed w i th i t s management tha t i t

was un for tunate tha t JP Morgan had not been ab le to s tand shou lder -

to -shou lder w i th us in suppor t ing the i r bus iness and we there fore jo in t l y

encouraged JP Morgan to look f o r a buyer fo r i t s shareho ld ing in the 20

bus iness who wou ld be an ins t i tu t ion w i l l i ng and ab le to ac tua l l y

suppor t us shou ld such a c r i s is reoccur. And th is led , as I unders tand

i t … ( in te rvent ion)

MR EMMANUEL LEDIGA: Quest ion , sor ry a ques t ion here , jus t in

te rms o f tha t l iqu id i t y suppor t d id i t mean tha t you bought some

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commerc ia l paper you know f rom them?

MR IAN SINTON: Yes, cor rec t , cor rec t .

MR EMMANUEL LEDIGA: And how b ig was tha t suppor t?

MR IAN SINTON: I don ’ t have the f igures a t hand, I wou ld be

mis lead ing you i f I guessed bu t I can cer ta in ly ge t tha t in fo rmat ion fo r

you.

MR EMMANUEL LEDIGA: Okay a l r igh t p lease do .

MR IAN SINTON: The management o f SA Home Loans ident i f ied the

Government Employees Pens ion Fund as a po ten t ia l cand ida te to

rep lace JP Morgan and I was to ld tha t the CEO of SA Home Loans 10

together w i th JP Morgan then commenced d iscuss ions about the GEPF

acqu i r ing an equ i t y s take in the bus iness . I ob ta ined las t n igh t f rom SA

Home Loans a copy o f a p resenta t ion da ted September 2012 wh ic h was

the f i r s t sor t o f over tu res by SA Home Loans to the GEPF th rough the

PIC about them acqu i r ing an equ i t y s take in the bus iness .

These over tu res resu l ted in JP Morgan agree ing to se l l i t s 50% s take in

SA Home Loans e f fec t i ve ly to the GEPF. That was i t sor t o f in

p r inc ip le . As the negot ia t ions progressed the PIC in t roduced Mr

Kho lo fe lo Maponya as buyer o f ha l f the s take tha t was be ing acqu i red

f rom JP Morgan and I ’ ve se t tha t a l l ou t in paragraphs 8 and 9 . 20

In paragraph 10 I po in t ou t tha t … ( in te rven t ion)

MS GILL MARCUS: Sor ry, sor ry Mr S in ton i f you don ’ t have the

i n fo rmat ion perhaps we can ob ta in tha t th rough the team, the PIC team

but , I mean the Commiss ion team, bu t who compr ised the consor t ium

tha t Mr Maponya was the lead o f , do we know who tha t was because

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the names become Bo la t ja H logo Consor t ium and the re la t ion o f BHC to

MMI and who the consor t ium was o f the d i f fe ren t components wou ld be

usefu l . I don ’ t know Mr S in ton i f you have tha t in fo rmat ion?

MR IAN SINTON: Madam Commiss ioner i f you look a t annexure SB 0

you ’ l l f i nd MOI fo r the , th is MOI was amended a t the t ime to a l low fo r

the t ransac t ion and i f you use the pages o f the MOI and you page

th rough to page 45, in fac t to page 46 you w i l l see there ’s a page

headed schedu le 2 BHC shareho lders .

MS GILL MARCUS: Okay.

MR IAN SINTON: And tha t was the in fo rmat ion g iven to us a t the t ime 10

as to who the consor t ium members were th rough BHC.

MS GILL MARCUS: Thank you. I f the team cou ld then look a t tha t in

te rms o f MMI and see what the compar ison or the add i t iona l peop le

may be so we have an idea o f who BHC is and who MMI is okay, thank

you.

MR EMMANUEL LEDIGA: Paragraph, ja coming back to paragraph 9

we heard yes terday tha t BCH had a concept document a l ready, you

know they ac tua l l y sor t o f ta lked to the PIC abou t th is who le concept

about the company and th is l i ke cont rad ic ts t h is tha t ac tua l l y the

company went to the PIC f i r s t , can you g ive us some l igh t there p lease? 20

MR IAN SINTON: Yes I th ink the execut ive o f SA Home Loans wou ld be

be t te r pos i t ioned to g ive you ac tua l de ta i l s bu t what they have, as I

sa id what they sent me was a presenta t ion da ted September 2012 in

wh ich SA Home Loans proposed to P IC tha t the GEPF acqu i red equ i t y

s take in SA Home Loans and they say, they to ld me las t n igh t and

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they ’d have to ge t conf i rmat ion , a year be fore they were in t roduced to

Mr Maponya.

MR EMMANUEL LEDIGA: Ja thanks so we need to jus t doub le -check in

te rms o f the da tes because tha t has go t a bear ing on the fee , yes .

MR IAN SINTON: Cor rec t . There was in p lace a t the t ime a

shareho lders ’ agreement be tween Standard Bank and JP Morgan in

te rms o f wh ich Standard Bank had pre -empt ive r igh ts i .e . i f JP Morgan

was to se l l then Standard Bank cou ld buy the i r shares . So in e f fec t the

consent o f Standard Bank was r equ i red fo r any shares to be so ld to Mr

Maponya and h is consor t ium. 10

Now I make the po in t in paragraph 10 tha t S tandard Bank was re luc tan t

to g ive i t s consent to the consor t ium requ i r ing these shares because

the very purpose o f the sa le was to in t roduce a n ins t i tu t iona l buyer w i th

su f f i c ien t cap i ta l and l iqu id i t y to p rov ide suppor t to SA Home Loans in

t imes o f need and Mr Maponya and h is consor t ium a t face va lue wou ld

no t sa t i s fy tha t requ i rement . In o rder to p rocure S tandard Bank ’s

consent i t was then p roposed to us tha t the GEPF wou ld guarantee the

ob l iga t ions o f Mr Maponya and h is consor t ium to p rov ide fund ing to SA

Home Loans in t imes o f need and as a resu l t o f tha t under tak ing the

Standard Bank gave i t s consent to the t ransac t ion proceed ing . 20

The ac tua l guarantee i t se l f i t ’s a fo rm o f sure tysh ip i s conta ined in the

MOI and I g ive the de ta i l s there .

MR EMMANUEL LEDIGA: Quest ion here , wou ld you know who ac tua l l y

recommended BCH to the company w i th in the PIC, wou ld you know the

person w i th in the PIC wh o sa id you need to dea l w i th Mr Maponya the

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company?

MR IAN SINTON: I don ’ t know, I don ’ t know who d id tha t . I can say

tha t on the f i r s t occas ion I met Mr Maponya was a t a meet ing in the

o f f i ces o f JP Morgan , th is i s a t the s tage when the negot ia t ions we re a t

an advanced s tage and we were ge t t ing together to d iscuss cont rac tua l

te rms etce tera and in tha t meet ing I asked Mr Maponya how i t i s tha t he

ou t o f 52 mi l l i on South A f r i cans came to be chosen to acqu i re th is s take

and he sa id i t was due to h is re la t ionsh ip w i th Dr Mat j i l a . Bu t how he

recommended h im I don ’ t know.

MR EMMANUEL LEDIGA: Thank you. 10

MR IAN SINTON: So I then make the po in t in paragraph 12 tha t as a

resu l t o f these fac tors wh ich I ’ ve a l l uded to dur ing 2014 the GEPF

represented by the PIC one, purchased fo r i t se l f 25% of the ord inary

vo t ing shares in SA Home Loans in i ssue and two, ass is ted the B o l ta ja

H logo Consor t ium Propr ie ta ry L imi ted i .e . BHC to acqu i re the o ther 25%

tha t was ava i lab le . The GEPF fac i l i t a ted tha t by, as I unders tand i t ,

lend ing money to the BHC aga ins t the secur i t y o f the shares purchased

b ind ing i t se l f as guarantor fo r any fu tu re fund ing ob l iga t ions owed by

BHC to SA Home Loans and secur ing a r ider f i r s t re fusa l to purchase

any o f the purchase shares in SA Home Loans t ha t BHC may w ish to 20

se l l . I po in t ou t the guarantor ob l iga t ions can be found in c lause 35 .5

o f the MOI and the r ider f i r s t re fusa l in c lause 36 .2 .1 o f the MOI .

MS GILL MARCUS: Sor ry jus t on tha t , wou ld you be fami l ia r a t a l l

whether such a guarantor wou l d be s tandard prac t i ce f rom a th i rd par ty

l i ke the PIC wh ich has i t s own 25% s take in i t , wou ld tha t have been

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s tandard p rac t i ce ? And i f fo r our Commiss ion team can we t ry to ob ta in

f rom the P IC how many dea ls have they s tood guarantor fo r, what i s the

r i sk o f those guarantees and in what amounts bu t in the i r suppor t fo r a

th i rd par ty tha t they br ing to a dea l , to a t ransac t ion do they have

ou ts tand ing ob l iga t ions and have those been re f lec ted or recorded in

i t s f inanc ia l s ta tements o r e lsewhere as to cont ingent l iab i l i t i es .

MR IAN SINTON: Madam Commiss ioner may I say tha t we have in

S tandard Bank a Corpora te F inance Team tha t spec ia l i ses in fund ing

BEE t ransac t ions , they ’ l l be fa r be t te r equ ipped than I to answer your

ques t ions so may I under take to ge t a v iew f rom them as to what they 10

see in the marke t and I ’ l l come back to you w i th a s ta tement .

MS GILL MARCUS: Thank you.

MR IAN SINTON: In the nex t paragraph I s imp ly record tha t as a resu l t

o f th is t ransac t ion be ing conc luded BHC nominated Mr Maponya and

another to be representa t i ves as d i rec tors on the board o f e f fec t i ve ly

SA Home Loans . The GEPF represented by the PIC nominated Mr

Ra jdhar and Mr Masekesa and I po in t ou t there in answer to the

Commiss ion , Madam Commiss ioner ’s ear l i e r ques t ion tha t th e

d isc losure o f who the shareho lders were o f BHC is as conta ined in the

schedu le 2 to the MOI . 20

The ra t iona le tha t was g iven and agreed I suppose to the GEPF

acqu i r ing th is s take was a w ish by the GEPF to have an e f f i c ien t

veh ic le th rough wh ich i t cou ld m ake fund ing ava i lab le to i t s members a t

compet i t i ve ra tes , tha t was the ra t iona le fo r the t ransac t ion . So i t ’s no t

surpr is ing tha t once the t ransac t ion had been conc luded SA Home

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Loans approached the PIC and sa id cou ld they bor row funds fo r on -

lend ing to the GEPF members as had a lways been env isaged and tha t

resu l ted in e f fec t i ve ly a loan agreement o f where GEPF agreed to

advance up to R9 b i l l i on to SA Home Loans or spec ia l purpose veh ic les

es tab l i shed by i t fo r tha t spec i f i c purpose .

MR EMMANUEL LEDIGA: Jus t a ques t ion there , so th is R9 b i l l i on was

i t par t o f those guarantees or guarantor i ssues or i t was jus t a separa te

mat te r?

MR IAN SINTON: No i t was comple te ly separa te , th is was a

s t ra igh t fo rward commerc ia l loan no t the prov is ion o f fund ing suppor t i n 10

l i qu id i t y cons t ra in t c i rcumstances . I t was a te rm o f tha t R9 b i l l i on loan

tha t SA Home Loans pay to the GEPF a commi tment fee o f ha l f a

percent o f 50 bas is po in ts wh ich obv ious ly amounts to R45 mi l l i on .

Af ter the loan agreement had been conc luded, you ’ l l see a t paragraph

15 tha t Mr Maponya then on beha l f o f h is company MMI de l i vered to SA

Home Loans an invo ice fo r R59.8 mi l l i on . I have at tached a copy o f

tha t invo ice to the papers , you ’ l l f i nd i t as annexure SB1 and i t sa id ,

i t ’s da ted 29 February 2016 and i t ’s fo r a , i t c la ims to be fo r a

t ransac t ion or ig ina t ion fee o f R52.5 mi l l i on p lus VAT wh ich ge ts to

R59.85 mi l l i on . 20

MR EMMANUEL LEDIGA: We don ’ t , we seem not to have SB1 the

i nvo ice , we seem no t to have tha t one.

MS GILL MARCUS: Ja perhaps we co u ld jus t have tha t tab led fo r us ,

i t ’s no t in our f i l es .

ADV NKAISENG KHOOE: We’ l l do that Commiss ioner, my apo log ies .

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MR IAN SINTON: Mr Maponya jus t i f ied th is c la im on the base tha t i t

was h is a l leged persona l in te rvent ions a t the P IC tha t had in f luence d

the P IC ’s dec is ion to g ran t the R9 b i l l i on fac i l i t y and fo r tha t he wanted,

he expec ted to be pa id th is amount o f money. To my knowledge SA

Home Loans re fused to make, to pay, to recogn ise the l iab i l i t y o r make

the payment fo r var ious reasons . I can g ive them to you, I ’m not sure

tha t they a re re levan t bu t they ’ re lega l and techn ica l , lega l in the sense

tha t he had no mandate to represent the company, he wasn ’ t asked to

ge t invo lved, he wasn ’ t invo lved, he d idn ’ t dec la re h is in te res t in te rms

of sec t ion 75 o f the Compan ies Ac t when the loan was approved by the 10

board etce tera . And in essence the fundamenta l i ssue was tha t SA

Home Loans d idn ’ t th ink i t was appropr ia te fo r a d i rec tor o f SA Home

Loans who represents a shareho lder in SA Home Loans to be pa id a fee

fo r be ing invo lved in any way in mon ies be ing bor rowed by SA Home

Loans so they re fused to pay h im and tha t then came to no th ing a f te r

tha t .

CHAIRPERSON: I suppose those are i ssues tha t w i l l be vent i la ted in

cour t?

MR IAN SINTON: Yes they, we l l he ’s no t su ing fo r th is amount o f

money h is cause o f ac t ion here was serv ices rendered fo r wh ich he 20

wanted to be pa id . The l i t i ga t ion tha t he ins t i tu ted is based upon a

cess ion tha t he says the PIC imp lemented wh ich is someth ing d i f fe ren t .

Hav ing no t secured payment f rom SA Home Loans fo r h is a l leged

in te rvent ions w i th the PIC as ou t l ined Mr Maponya then procured the

de l i very to SA Home Loans o f a le t te r wh ich is annexed here to f rom the

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PIC to SA Home Loans in i t the P IC purpor ted to g ive no t ice tha t i t had

ceded to MMI a r igh t wh ich the GEPF had to rece ive R45 mi l l i on as a

commi tment fee f rom the bor rowers i .e . these spec ia l purposes veh ic les

or SA Home Loans under the R9 b i l l i on loan fac i l i t y.

MS GILL MARCUS: Sor ry Mr S in ton cou ld you ind ica te why you use

the word ‘purpor ted ly ’?

MR IAN SINTON: Only because subsequent ly a le t te r was issued

say ing tha t i t shou ld never have been, there was in fac t no va l id

cess ion .

MS GILL MARCUS: But tha t ’s a , purpor ted ly the way I read th is i s tha t 10

you ’ re no t ques t ion i ng the au thent ic i t y o f the le t te r?

MR IAN SINTON: No not a t a l l .

MS GILL MARCUS: So i t ’s an au thent ic le t te r bu t i t was an incor rec t

… ( in te rvent ion)

MR IAN SINTON: The cess ion i t se l f i s doubt fu l yes .

MS GILL MARCUS: Ja.

MR IAN SINTON: Cor rec t . The le t te r was then s igned by the then CEO

of the PIC Dr Dan Mat j i l a and you ’ l l no te tha t the re fe rence g iven is the

person respons ib le fo r i t was Mr Ra jdhar who a t the t ime was an

employee o f the P IC and the PIC ’s nominee on the board o f SA Home 20

Loans . Mr Maponya s ta ted then and subsequent ly to me on a number

o f occas ions tha t the cess ion was the PIC ’s chosen method o f

compensat ing h im fo r h is in te rvent ions fo r wh ich the SA Home Loans

had den ied l iab i l i t y.

MS GILL MARCUS: Sor ry Mr S in ton can I jus t ask in r e la t ion to the

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v iew tha t you wou ld have or Home Loans wou ld have about a board , Mr

Ra jdhar was a board member?

MR IAN SINTON: He was a t the t ime a board member yes .

MS GILL MARCUS: And a t the t ime fo r Mr Ra jdhar as a board member

be ing respons ib le fo r th is on the par t o f the P IC is there no t a

conf l i c tua l s i tua t ion there?

MR IAN SINTON: There is Madam Commiss ioner, there was and there

i s .

MS GILL MARCUS: So d id Home Loans go back to the P IC and say

l ook Mr Ra jdhar i s a board member and i t ’s inappropr i ate fo r h im to be 10

dea l ing w i th th is on bo th s ides o f the fence?

MR IAN SINTON: I don ’ t know i f tha t happened, I wasn ’ t pa r ty to such

a d iscuss ion .

I then go on to say tha t in 18 , hav ing regard to the c i rcumstances

where the company had dec l ined to make a payment to Mr Maponya or

MMI i t se l f i t was concerned about the c i rcumstances under wh ich i t had

now been to ld tha t i t shou ld pay th is R45 mi l l i on fee due to the GEPF to

a th i rd par ty who happened to be a d i rec tor and shareho lder in the

company and they the re fore re fe r red the le t te r to S tandard Bank ,

e f fec t i ve ly to me, to ask fo r gu idance on how to respond. 20

We, I say a t po in t 19 , we cons ider the cess ion by the PIC o f a debt due

by SA Home Loans to the GEPF or a l leged debt as a method o f pay ing

fo r serv ices a l l eged ly rendered by Mr Maponya to the PIC wh i ls t was

bo th the d i rec tor o f SA Home Loans and s tood to benef i t as a

s ign i f i can t shareho lder f rom the R9 b i l l i on fac i l i t y as be ing po ten t ia l l y

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i r regu lar. As a consequence … ( in te rvent ion)

MR EMMANUEL LEDIGA: Jus t to check here sor ry, to check someth ing

there how d id the R59.8 mi l l i on become R45 mi l l i on the invo ice was fo r

tha t and then the GEPF then was supposed to ge t the 45 jus t exp la in

tha t p lease?

MR IAN SINTON: My unders tand ing is tha t bu i l t in to the 5 9 was the 45

on th is 9 and there was a separa te fac i l i t y g ran ted fo r a deve lopment

fund tha t was a d isc re te t ransac t ion and so i t was s imp ly he added the

two amounts together and came to the 59 . As a resu l t o f our lack o f

comfor t over the cess ion o f the l e t te r, I perhaps shou ld ment ion , 10

Commiss ioners , i s tha t a t S tandard Bank we t ry to be ex t ra caut ious in

our dea l ings w i th pens ion funds , we regard - , I th ink as a mat te r o f law,

the rea l owners o f pens ion funds are the members o f the funds . The

members o f the funds by de f in i t ion vu lnerab le peop le and there fore we

t ry, when we dea l w i th pens ion funds , to ensure tha t those are the i r fee l

dea l ings and reasonab le pr ices , e tce tera . And we were concerned tha t

th is d isposa l by an asset manager o f an asset o f 45 mi l l i on to a serv ice

prov ider ra ther than jus t pay ing the serv ice prov ider w i th a cheque , as

i t were , was unusua l and needed to be – we wanted to f ind ou t more .

So, as a resu l t , we ar ranged Mr S im Tshaba la la , who was then 20

the Ch ie f Execut ive o f S tandard B ank – I say then because i t was

Standard Bank South A f r i ca , he ’s now ch ie f execu t ive o f the group but

then he was ch ie f execut ives o f S tandard Bank South A f r i ca . He and I

met w i th Dr Dan Mat j i l a persona l l y and we in fo rmed tha t ou t o f our

concern the cess i on might be i r regu la r, we, S tandard Bank , wou ld

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oppose e i ther the bor rowers or SA Home Loans mak ing payment to MMI

ra ther GEPF pursuant to the cess ion , i f the P IC cou ld no t p rov ide

ev idence tha t the t rus tees o f the GEPF had approved, a l te rna t ive ly

ra t i f ied the cess ion and even i f such approva l o r ra t i f i ca t ion was

fo r thcoming we wou ld cons ider b r in ing such a cess ion o f a pens ion

funds asset in these c i rcumstances to the a t ten t ion o f the appropr ia te

regu la tors . That was bas ica l l y the impor t o f the d iscuss ion we had.

Dr Mat j i l a in fo rmed us tha t he cou ld no t remember the

c i rcumstances under wh ich the cess ion had been s igned by h im but tha t

he wou ld look in to the mat te r in the l igh t o f our concerns and we le f t 10

…[in tervenes ]

MS GILL MARCUS : Sor ry, what was the da te then tha t you met w i th

h im, do you know?

MR IAN SINTON: I wou ld – I can consu l t my d ia ry bu t i t was shor t l y

a f te r the s ignature o f the cess ion le t te r.

MS GILL MARCUS : So i f Dr Mat j i l a s igned on the 29 Apr i l , wh ich was

the le t te r acced ing i t s r igh ts was the 29 Apr i l and the resc ind ing le t te r

i s the 10 May wou ld th is have occur red be tween tha t per iod?

MR IAN SINTON: Abso lu te ly, Madame Commiss ioner, yes .

MS GILL MARCUS : So the response then in paragraph 20 is tha t 20

wi th in a week he wou ld no t have rem embered wh ich le t te r he s igned.

That ’s what he ’s say ing . I f he cannot remember the c i rcumstances

under wh ich the cess ion le t te r had been s igned but i t wasn ’ t l i ke he –

a re you ask ing to remember a year o r two years be fore , you asked h im

to remember a wee k be fore?

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MR IAN SINTON: I t ’s sa fe to deduce tha t , Madame Commiss ioner,

yes .

MS GILL MARCUS : I ’m jus t – tha t ’s why I ’m jus t look ing a t the t ime i t

happened.

MR IAN SINTON: Yes , cor rec t , yes i t wou ld have been …[in tervenes ]

MS GILL MARCUS : I t wou ld have been w i th in a recent per iod .

MR IAN SINTON: I t was a f te r tha t le t te r and be fore the resc ind ing

le t te r was rece ived.

MS GILL MARCUS : So w i th in a per iod o f 10 days?

MR IAN SINTON: So w i th in tha t 10 days , cor rec t . 10

MS GILL MARCUS : And h is response is I don ’ t remember the

c i rcumstances o f the s ign ing .

MR IAN SINTON: Yes .

MS GILL MARCUS : He d idn ’ t say I don ’ t remember s ign ing . He

doesn ’ t remember the c i rcumstances o f s ign ing .

MR IAN SINTON: He sa id more to the e f fec t he s igns lo ts o f th ings

tha t a re brought to h im fo r s ignature , he doesn ’ t remember th i s

par t i cu la r document , you ’d have to look in to i t and come back to us .

MS GILL MARCUS : Okay, so s ign ing a cess ion i s no t someth ing tha t

s tands ou t . Okay. 20

MR IAN SINTON: I then in paragraph 21 say t ha t :

“Shor t l y a f te r the meet ing I d idn ’ t hear any th ing fu r ther f rom Dr

Mat j i l a…”

Bu t shor t l y a f te r tha t meet ing , i .e . I th ink as we cor rec t l y po in t ou t on

the 10 May, I th ink i t was .

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“…the PIC de l i vered a le t te r to SA Home Loans , the bor rowers ,

i t t oo was s igned by Dr Mat j i l a and so d id Mr Ra jdhar as the

or ig ina tor o f the le t te r fo r the P IC. In i t the P IC gave no t ice

tha t there was no lawfu l bas is fo r the cess ion o f the 45 mi l l i on

c la im by the GEPF to MMI and there fore the cess ion was

re t rac ted and resc ind ed. ”

Obv ious ly the word ing is – tha t ’s a summary o f the word ing bu t tha t

was our in te rpre ta t ion o f what tha t le t te r purpor ted to do . In the nex t

paragraph I po in t ou t tha t :

“Mr Maponya sough t to cha l lenge the lawfu lness o f the P IC ’s 10

re t rac t ion , resc iss ion o f the purpor ted cess ion and th rea tened

to sue SAHL fo r payment in te rms o f i t . ”

Th is was obv ious ly d isconcer t ing fo r us to have a d i rec tor th rea ten ing

to sue the company in these c i rcumstances and to t ry and aver t tha t

conf l i c t a t a board leve l i t was pr oposed tha t th is who le d i spute shou ld

ra ther be re fe r red to the shareho lders . BHC and MMI and Mr Maponya

typ ica l l y rea l l y a re regarded as one en t i t y, they cer ta in ly behave as one

en t i t y.

However, be fore the d ispute was ac tua l l y esca la ted to the

shareho lders we were wa i t ing fo r some sor t o f p rocess to s ta r t . 20

There ’s a p rescr ibed process in the MOI . Be fore i t happened Mr

Maponya de l i vered a le t te r da ted 4 November 2016, i t ’s a lso in the

pack o f documents , where he s ta tes tha t the cess ion fo r payment

a r rang ing fees had been re tu rned to P IC w i th the reques t tha t payment

shou ld no longer be e f fec ted and he sa id fo r tha t reason he in tended

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l i t i ga t ion over th is fee has now been w i thdrawn and i t means tha t the

i ssue o f the conf l i c t o f in te res t in respec t o f h im as a d i rec tor aga ins t

the company no longer ex is ted because we took issue w i th h im as a

d i rec tor th rea ten ing to sue the company.

There has a lso had been an issue around the fac t tha t when he

sa t as a d i rec tor o f the company to approve the R9 b i l l i on fac i l i t y he

hadn ’ t d isc losed tha t he in tended to c la im th is 45 mi l l i on as a

consequence o f tha t t ransac t ion wh ich we th ink was a cont ravent ion o f

the Compan ies Ac t . So fo r a l l those reasons he s ta tes in h is le t te r he

th inks tha t hav ing now sur rendered th is ces s ion le t te r and hav ing 10

i ns t ruc ted the PIC tha t ’s he ’s no t go ing to expec t payment tha t b rought

an end to the l i t i ga t ion th rea t , b rought an end to the con f l i c t and

consequent ly SA Home Loans shou ld proceed w i th the imp lementa t ion

o f the t ransac t ions , e tce te ra , e tce tera , as the va l id i t y i s beyond

reproach. I t was a f te r, as I unders tand, the rece ip t o f th is le t te r tha t

the SA Home Loans then pa id the 45 m i l l i on due to the GEPF to the

GEPF. In paragraph 23 I then say tha t :

“SBSA’s unders tand ing is tha t by the end o f 2017 R9 b i l l i on

fac i l i t y had been fu l l y d rawn down and advanced to the

in tended benef ic ia r ies . SA Home Loans then superv ised the 20

draw down ascer ta ined to be unsat is f ied demand f rom

members o f GEPF fo r hous ing loans . I t there fore app l ied to

GEPF v i a the P IC fo r an add i t iona l R10 b i l l i on fac i l i t y. ”

MS GILL MARCUS : Was MMI in any way o ther than th rough Mr – MMI

was s t i l l on the board a t tha t po in t in t ime?

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MR IAN SINTON: Mr Maponya was s t i l l on the board , yes .

MS GILL MARCUS : Yes and so was Mr Ra jdhar?

MR IAN SINTON: Yes , so was Mr Ra jdhar, yes .

MS GILL MARCUS : And Mr Mse leku?

MR IAN SINTON: Masekesa.

MS GILL MARCUS : Masekesa .

MR IAN SINTON: Yes he was on the board .

MS GILL MARCUS : Yes , so f rom the po in t o f v iew they were agree ing

to th i s approach to the PIC, GEPF fo r 10 b i l l i on as members o f the

board o f SAHL, they wou ld have approved tha t o r been par t o f tha t 10

dec is ion to approach i t , i t was no t in any o ther capac i t y.

MR IAN SINTON: Tha t i s my unders tand ing , yes , Madame

Commiss ioner. I n the nex t paragraph I po in t ou t tha t :

“ In the las t quar te r o f 2018 Mr Kev in Penwarden, the CEO of

SA Home Loans asked to consu l t w i th me in person about

deve lopments tha t he descr ibed as be ing o f a h igh ly sens i t i ve

and concern ing na tu re . I and co l leagues f rom the bank met

w i th h im and the SA Home Loans company secre tary as a

resu l t o f tha t reques t . They in fo rmed us tha t in September

2018 and a t a t ime when SA Home Loans was awai t ing a 20

response to the R10 b i l l i on loan app l i ca t ion Mr Masekesa and

Mr Maponya ac t ing together in fo rmed a sen ior execut ive o f SA

Home Loans tha t they ’d been author ised by Dr Mat j i l a to

i n fo rm SA Home Loans tha t approva l o f the app l i ca t ion fo r the

add i t iona l 10 b i l l i on was cond i t iona l upon SA Home Loans

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agree ing to pay ou t o f the pr oceeds R95 mi l l i on to MMI as an

or ig ina t ion fee . They exp la ined tha t th is was made up o f the

R45 mi l l i on no t pa id in 2016 as se t ou t above p lus another R50

mi l l i on , i .e . 0 .5% o f R10 b i l l i on fo r the R10 b i l l i on fac i l i t y

under cons idera t ion . Th is in fo rmat i on I re fe r red to as the

cond i t ion . ”

MR EMMANUEL LEDIGA: Ques t ion .

MR IAN SINTON: Yes .

MR EMMANUEL LEDIGA: Was th is 10 b i l l i on approved and was the 95

mi l l i on pa id f ina l l y? 10

MR IAN SINTON: The R10 b i l l i on to da te has ne i ther been approved

nor dec l ined as fa r as I know and R95 mi l l i on was no t pa id .

MR EMMANUEL LEDIGA: I t was no t pa id . Okay.

MS GILL MARCUS : Can I jus t ask in re la t ion to th is , how d id you

in te rpre t th is ques t ion o f au thor isa t ion g iven tha t , i f I reca l l cor rec t l y,

Mr Masekesa is – h is func t ion i s as the – i s in the o f f i ce o f Dr Mat j i l a ,

d id tha t g i ve i t we igh t , tha t he was coming f rom the o f f i ce o f Dr Mat j i l a

as a board member, to g ive you th is in fo rmat ion or was there – I mean,

how d id you in te rpre t tha t au thor isa t ion? D id you regard i t as rea l?

MR IAN SINTON: Madame Commiss ioner, I …[in te rvenes ] 20

MS GILL MARCUS : Sor ry, d id anyone then ac tua l l y phone or contac t

Dr Mat j i l a to ask h im whether in fac t au thor ised th is and what – and

g iven tha t th is i s now s ix months la te r, seven months la t e r, tha t the

home loan issue, the 10 b i l l i on has no t been addressed, how are you

in te rpre t ing tha t g i ven tha t th is i s someth ing tha t GEPF i t se l f i s

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commi t ted to in te rms o f hous ing i t s own members and so on?

MR IAN SINTON: Madame Commiss ioner, my recomme ndat ion to Mr

Penwarden a t the t ime was tha t he shou ld no t accept th is as second -

hand in fo rmat ion , tha t he shou ld contac t Dr Mat j i l a d i rec t l y and ask fo r

conf i rmat ion o f th is and then I go on to say e lsewhere tha t he shou ld

a lso consu l t w i th SA Home Loans own lawyers to ge t c lear adv ice as to

what to do in the contex t o f th is because there a re – i t cer ta in ly was

poss ib le to in te rpre t th is in fo rmat ion as a so l i c i ta t ion o f a b r ibe and i t

was very concern ing i f Dr Mat j i l a d id know about i t . I f he d idn ’ t know

about i t then i t was in any event some sor t o f un lawfu l 10

misrepresenta t ion tha t he d id know about i t . So I recommended tha t

they shou ld ge t ho ld o f h im and get f rom h im as f rom the horse ’s

mouth , as i t were , what happened.

I m igh t ment ion , Madame Commiss i oner, tha t I was present

yes terday when the ora l ev idence was p resented. I d idn ’ t have ins igh ts

i n to the annexures to the s ta tements tha t were dea l t w i th bu t i f you

l ook a t Mr Ra jdhar ’s s ta tement o f yes terday, I was th is morn ing g iven –

re fe r red to annexu re M to h is s ta tement …[in tervenes ]

MS GILL MARCUS : Sor ry, jus t hang on a sec , can re fe r tha t to our

f i l es , I jus t want to ge t there . Annexure M, ja . 20

MR IAN SINTON: I was unaware when I d id my – when I sor t o f has t i l y

pu t together my s ta tement yes terda y a f te rnoon tha t th is document ,

wh ich was a repor t tha t Mr Penwarden gave to the board o f d i rec tors as

a who le , where he g ives in g rea t de ta i l h is account o f what t ransp i red

and there you w i l l see tha t he sa id tha t he d id a t tempt to contac t Dr

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Mat j i la to b u t to – [ ind is t inc t ] o r he d id in tend to bu t by the t ime he go t

around to do ing i t he ’d res igned as the Ch ie f Execu t ive . So as fa r as I

can te l l there i s – to da te he has no t been contac ted fo r h i s input on

th is .

MS GILL MARCUS : Wou ld the fac t tha t he i s no longer the CEO

prec lude you f rom contac t ing h im? I mean, he s t i l l has respons ib i l i t i es

fo r au then t ica t ing th is o r o therw ise and th is i s – I mean, the da te o f

th is i s yes terday, so th is – the 29 Apr i l , so th is i s a very recent mat te r

on th is annexure M.

MR IAN SINTON: Yes , yes , i t i s , yes i t i s . 10

MS GILL MARCUS : Ja . Wou ld there have been an au tomat ic

p rec lus ion f rom cont rac t ing h im because he was no longer CEO?

MR IAN SINTON: Not tha t I ’m aware o f , Madame Commiss ioner. The

– Mr Penwarden then rep or ted to us tha t he had taken adv ice and he

had been adv ised tha t he had to under take cer ta in ac t ions in te rms of

s ta tu tory du t ies . I don ’ t dea l w i th them in my s ta tement because i t ’s a

mat te r rea l l y be tween Mr Penwarden, i t ’s h is persona l ob l iga t ions and

tha t he had to sa t i s fy and I ’m sure – I thought tha t he wou ld be bes t

p laced to dea l w i th tha t bu t you w i l l f i nd in h is s ta tement , tha t ’s the

document , wh ich is annexure M, to Mr Ra jdhar ’s s ta tement , he dea ls 20

wi th i t in g rea t de ta i l as to what the adv ice was an what he ’s done w i th

tha t adv ice .

MR EMMANUEL LEDIGA: Paragraph 25, you ment ioned Sec t ion

3(3) (2 ) o f the Cr im ina l Procedure Ac t . Can you p lease exp la in to us

there?

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MR IAN SINTON: Yes, tha t ’s to do w i th corpora te c r im ina l i t y, i . e .

ef fec t i ve ly, as I unders tand i t , i f execut ives o f a company commi t

c r imes in the course and scope o f the i r du t ies then the corpora te i t se l f

can be charged and s imi la r l y where a corpora te i s c r im ina l l y l iab le then

the d i rec tors and co - respons ib le can be a lso charged. I s a id you jus t

need to jus t look in to th is . I f there was c r im ina l i t y they need to be very

concerned about the impac t on the company i t se l f .

MR EMMANUEL LEDIGA: Oh, okay, a l r i gh t .

MR IAN SINTON: Mr Penwarden then repor ted to me tha t when the

aud i to rs o f SA Home Loans asked h im as par t o f the c los ing ou t o f the 10

December 2018 f inanc ia l year aud i t i f there any i r regu lar conduc t on

the par t o f management o r execut ives tha t he ought to d i sc lose he

ment ioned th is who le inc iden t and the lega l adv ice tha t had been

obta ined and the consequences tha t fo l l owed f rom tha t .

MS GILL MARCUS : Can I jus t ask , does tha t cover paragraph 26

where Mr Penwarden says tha t he had compl ied w i th h i s s ta tu to ry

ob l iga t ions , were there s ta tu to ry ob l iga t ions a broader repor t ing beh ind

tha t?

MR IAN SINTON: Yes, I ’m re fe r r ing there , Madame Commiss ioner, to

Sect ion 34 o f the Prevent ion and Combat ing o f Cor rup t Ac t iv i t ies Ac t . 20

MS GILL MARCUS : So he repor ted in te rms o f tha t Ac t to who?

MR IAN SINTON: To the Hawks , Madame Commiss ioner.

MS GILL MARCUS : To the Hawks?

MR IAN SINTON: Yes . The aud i to rs on learn ing o f these events gave

no t ice tha t they wou ld repor t what had happened as an i r regu lar i t y as

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env isaged in Sec t ion 45 o f the Aud i t ing Pro fess ion Ac t and there ’s

spec i f i ca l l y s ta ted the document wh ich was c i rcu la ted by them tha t in

the i r op in ion , no t be ing lawyers bu t in the i r op in ion as aud i to rs , what

had occur red was a cont ravent ion o f Sec t ion 3 o f the Prevent ion and

Combat ing o f Cor rup t Ac t iv i t ies Ac t wh ich aga in my unders tand ing i t ’s a

so l i c i ta t ion o f a b r ibe to induce a cont rac t .

MR EMMANUEL LEDIGA: Coming back aga in to paragraph 26. When

d id Mr Penwarden repor t th is case to the Hawks? Can you reca l l?

MR IAN SINTON: I can ’ t g ive you a da te , Commiss ioner, bu t i t was

af te r he rece ived the lega l adv ice tha t he was ob l iged to do so . 10

MR EMMANUEL LEDIGA: A l r igh t .

MR IAN SINTON: I do know i t was th is year no t las t year. 2019.

MR EMMANUEL LEDIGA: 2019, okay.

MR IAN SINTON: On 2019 – I th ink on paragraph 29 on or about the

16 Apr i l , I th ink th is was ment ioned yes terday, MMI i ssued summons

aga ins t a range – P IC and a range o f o ther par t ies inc lud ing SA Home

Loans in wh ich he ’s c la im ing payment o f the R45 mi l l i on based upon

the cess ion and the on ly reason I ment ion i t here because i t needs to

be ment ioned, I th ink , tha t he ’s su ing fo r tha t money desp i te the le t te r

which he wro te say ing I have re tu rned the document , I no longer expec t 20

to be pa id and as a consequence o f tha t , SA Home Loans pa id GEPF

d i rec t l y the mon ies , they no longer have the funds and tha t tha t ’s

re levant , I th ink . And then perhaps paragraph …[in tervenes ]

MS GILL MARCUS : Sor ry, jus t be fore you move on f rom tha t . You d id

ment ion ear l ie r tha t the – in a way the MMI and BHC were

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i n te rchangeab le bu t , i f I unders tood t he shareho ld ing , MMI i s one o f the

shareho lders w i th in BHC. BHC is the counterpar ty. How wou ld MMI

sue i f the counterpar ty in SAHL or the inves tor in SAHL is BHC and not

MMI?

MR IAN SINTON: There ’s two answers , Madame Commiss ioner.

Fi rs t l y, when I say they ’ re in te rchangeab le , they ’ re no t c lear ly lega l l y

in te rchangeab le , they ’ re each …[ in te rvenes ]

MS GILL MARCUS : That ’s why I ’m ask ing the ques t ion .

MR IAN SINTON: They each have a d is t inc t lega l …[in tervenes ] .

MS GILL MARCUS : Because lega l l y ( inaud ib le – speak ing 10

s imul taneous ly ) d i f fe ren t .

MR IAN SINTON: They each have a d is t inc t lega l persona l i t y and

there ’s a h ie rarchy. However, as recent ly as las t month we had a

shareho lders meet ing ca l led by BHC and the on ly i tem on the agenda

was the non -payment o f th is R45 mi l l i on fee to MMI , so when I asked

Mr Maponya on what bas is we need to ca l l a meet ing o f shareho lders to

d iscuss the non -payment o f MMI , he sa id because BHC and MMI are

fu l l a l l i n ten ts and purposes one and the same person.

MR EMMANUEL LEDIGA: Paragraph, ja , coming back to…

MR IAN SINTON: Sor ry, may I f in ished, Mr Commiss ioner. 20

MR EMMANUEL LEDIGA: A l r igh t .

MR IAN SINTON: The second issue i s , the cause o f ac t ion in the

summons, as I unders tand i t , i s the cess ion . The i r case is tha t the P IC

s igned tha t cess ion le t te r where the cess ionary – the cedent i s GEPF,

the cess ionary i s MMI and there fore MMI is the p la in t i f f in tha t

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l i t i ga t ion . Sor ry, Commiss ioner.

MR EMMANUEL LEDIGA: Okay. Paragraph 28 you ment ion tha t th is

cou ld con t ravene Sec t ion 3 over the PCCA. Can you jus t exp la in

fu r ther the re , p lease?

MR IAN SINTON: Yes , the Prevent ion and Combat ing o f Cor rup t

Ac t iv i t ies Ac t p roh ib i t s a w ide range o f ac t i v i t ies wh ich are de f ined by

law to be i l l ega l and cont ravent ion o f the Ac t has ver y ser ious

pena l t ies . The Ac t then is d iv ided in to var ious sec t ions and as I

unders tand Sec t ion 3 , i t i s the Sec t ion wh ich makes i t i l l ega l fo r

inducements to be o f fe red to persuade peop le to en ter in to cont rac ts in 10

an improper manner, e f fec t i ve ly. And th e aud i to rs deemed what

happened here to be an a t tempt to induce a con t rac t th rough a R95

mi l l i on br ibe . In paragraph 30 I ment ion tha t :

“ In Apr i l the dra f t aud i ted f inanc ia l s ta tements fo r SA Home

Loans were presen ted to the aud i t and r i sk commi t tee fo r

approva l and recommendat ion to the respec t ive boards . The

aud i to rs a t tend the meet ing to exp la in why they had inc luded

th is re fe rence to i r regu lar i t y and Mr Penwarden tab led a

de ta i led wr i t ten repor t o f what had t ransp i red , what adv ice he

had been g iven, e tce tera , wh ich is subs tan t ia l l y in the fo rm o f 20

annexure M to Mr Ra jdhar ’s s ta tement . ”

Not surpr i s ing ly, when Mr Masekesa, Mr Maponya learn t o f th is they

were somewhat ag i ta ted and demanded an urgent board meet ing to pu t

the i r s ide o f the s to ry and to cha l l enge what had happened and th is

genera l l y t r ied to I suppose have the i r s ide o f the s to ry heard and

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debated and tha t board meet ing I th ink i s ongo ing as we speak . So

tha t ’s where we are in the cur ren t o f a f fa i rs .

MS GILL MARCUS : What i s the te rm o f o f f i c e o f the P IC

representa t i ves? I mean, o f a l l your board , anyway i t wou ld be a th ree

year renewab le , what i s the i r te rm o f o f f i ce and how fa r a long are they?

MR IAN SINTON: I don ’ t know the answer o f fhand, Madame

Commiss ioner, bu t i t i s conta ined in the MOI. I don ’ t be l ieve there i s a

te rm fo r those who are appo in ted by a shareho lder, I don ’ t be l ieve

there ’s a f i xed te rm. My reco l lec t ion i s tha t each shareho lder who

ho lds more than a spec i f ied percentage is en t i t led to appo in t a person 10

on the board and I don ’ t th ink there ’s a t ime l im i t . I can , i f you ’d l i ke –

page 36. Yes , bu t I say, Madame Commiss ioner, on paragraph 40.1 .6

o f the MOI :

“Each d i rec tor sha l l serve fo r an indef in i te te rm. ”

MR EMMANUEL LEDIGA: Jus t a f ina l ques t ion f rom me. Jus t to be

c l ear, so the 10 b i l l i on fac i l i t y hasn ’ t been approved and the GEPF

peop le are wa i t ing fo r such loans and is ma in ly because o f tha t

cond i t ion?

MR IAN SINTON: That i s our unders tand ing , yes , Mr Commiss ioner.

ADV NKAISENG KHOOE : I jus t want to take you to the beg inn ing a b i t 20

i n the l igh t o f cer ta in ass is tan t Commiss ioner Led iga ’s ques t ion about

or ig ina t ion o f the dea l . I jus t want your unders tand ing o f the dea l

o r ig ina t ion w i th regard to th is appra isa l repor t tha t was dra f ted by the

PIC in 2013 wh ich was a f te r the submiss ion by SA Home Loans and I

wou ld re fe r the Commiss ion to the appra isa l repor t SA Home Loans ,

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j us t on the f i r s t page so tha t he can jus t c la r i f y the po in t tha t

Commiss ioner – there was a ques t ion tha t he had asked regard ing the

t ime per iods and the or ig ina t ion o f the dea l .

JUSTICE LEX MPATI : So wh ich document do you want to re fe r to?

ADV NKAISENG KHOOE : Sor ry, the appra isa l repor t wh ich was a

separa te document da ted 2013.

MR EMMANUEL LEDIGA : Ja , wh ich par t o f the repor t then? Which

sec t ion , wh ich area?

ADV NKAISENG KHOOE : The f i r s t b lock tha t descr ibes what the dea l

i s about . 10

MR EMMANUEL LEDIGA: Okay, a l r i gh t .

MR IAN SINTON: Yes , in answer the document in f ron t o f me

descr ibes the pro jec t Namasec (P ty ) L td t rad ing as BH Consor t ium

hav i ng approached the PIC to jo in t l y acqu i re J P Morgan ’s 50%

shareho ld ing in SA Home Loans wh ich se ts ou t in the document the re

on the nex t page, there i s an execut ive summary where a t paragraph 2

i t says :

“SA Home Loans was founded in February 1999, i t s hea d o f f i ce

i s in Durban. ”

Paragraph 3 says : 20

“More than a year ago…”

Now th is document i s da ted 2013, acknowledged tha t :

“More than a year ago PIC was approached by SA Home Loans

to p rov ide fund ing th rough a secur i t i sa t ion s t ruc ture in o rder to

expand i t s ope ra t ions . ”

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And then 4 :

“P IC ind ica ted tha t i t was in te res ted in acqu i r ing an equ i t y

i n te res t p r io r to g i v ing any cons idera t ion or p rov is ion o f a

cred i t fac i l i t y. ”

So they acknowledged tha t the P IC more than a year be fore th is paper

had ind ica ted a w i l l i ngne ss to acqu i re an equ i t y be fore prov id ing c red i t

and then subsequent ly J P Morgan commenced upon a process an

equ i ty s take . The po in t I made a t the ou tse t tha t was tha t I ’ ve been

g iven a copy o f p resenta t ion – two presenta t ions tha t were sent to me

wh ich I unders tand Mr Penwarden SA Home Loans is in d iscuss ions 10

wi th the inves t iga to rs to p resent to the Commiss ion bu t one is da ted

June 2012 in wh ich there ’s a p roposa l fo r fund ing and then there ’s

another p resenta t ion da ted September 2012 in wh ich SA Home Loan s

inv i tes the GEPF th rough the PIC to acqu i re an equ i t y s take . So a l l o f

th is took p lace we l l be fore th is paper was pu t to the board o f the P IC.

MR EMANNUEL LEDIGA: I t does , you know, answer the ques t ion

there .

ADV NKAISENG KHOOE: I jus t want to con f i rm tha t Annexure M is

be fore the Commiss ion as i t was par t o f the annexures o f Mr Roy i th

Ra jdhar yes terday. 20

MR EMANNUEL LEDIGA: Ja , we do have tha t .

CHAIRPERSON: I s tha t i t in re la t ion to th is w i tness?

ADV NKAISENG KHOOE: I beg your pardon?

CHAIRPERSON: I s tha t i t in re la t ion to th is w i tness?

ADV NKAISENG KHOOE: That conc ludes the tes t imony o f Mr Ian

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Sin ton .

MR EMANNUEL LEDIGA: There were four peop le ment ioned tha t th is

sor t o f imp l ica tes the four peop le . Can you g ive us the names o f the

peop le , i f poss ib le?

ADV NKAISENG KHOOE: I t i s Mr Dan Mat j i l a , Roy i th Ra jdhar,

We l l ing ton Masekesa and Mr Maponya.

MR EMANNUEL LEDIGA: Okay, thank you.

CHAIRPERSON: Yes , thank you, Mr S in ton . Thanks fo r you t ime and

thanks fo r vo lun teer ing to come and tes t i f y to us and c lear ing cer ta in

mat te rs . Cer ta in mat te rs have been c leared and we rea l l y a re gra te fu l 10

fo r you fo r your t ime and e f fo r t .

MR IAN SINTON: Thank you, Mr Commiss ioner.

CHAIRPERSON: For now you are excused. I say th is . . . [ in te rvenes ]

MR IAN SINTON: Yes , bu t I have one more ques t ion , i f I may. I have

under taken to respond w i th fac tua l answers to var ious ques t ions wh ich

I cou ld no t answer here . I s i t enough tha t I pu t in the supp lementary

s ta tement o r must I come back?

CHAIRPERSON: I wou ld pre fer i t i f you wou ld pu t down on a

s ta tement fo r tha t s ta tement to be an a f f idav i t ra ther than jus t a p la in

s ta tement . 20

MR IAN SINTON: F ine . Thank you, Mr Cha i rman.

CHAIRPERSON: A l l r igh t . Bu t i f i t happens tha t we need to ca l l you

aga in to c lear up more mat te rs o r i ssues , p lease ava i l yourse l f . That

migh t happen.

MS JILL MARCUS: And perhaps fo r the team i t wou ld be very use fu l

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fo r us to ge t the ou tcome o f today ’s board meet ing when ava i lab le .

Thank you .

MR IAN SINTON: Thank you.

ADV NKAISENG KHOOE: We wi l l do so , Commiss ion .

MR IAN SINTON: So I am excused, Mr Commiss ioner?

CHAIRPERSON: Yes , indeed . You are excused.

MR IAN SINTON: Thank you.

CHAIRPERSON: We wi l l take the tea ad journment un t i l twenty pas t

e leven.

ADV NKAISENG KHOOE: Thank you, Commiss ioner. 10

INQUIRY ADJOURNS

INQUIRY RESUMES :

ADV JANNIE LUBBE SC: Thank you, Mr Commiss ioner. We are ready

to p roceed w i th the nex t w i tness , Mr André P ienaar. He is an ac tuary

who per fo rmed The Sta tuary Ac tuar ia l Va lua t ion as a t 31 March 2018.

He w i l l take the prescr ibed oa th . Jus t s tand up , p lease. Put on the

mic rophone. Thank you.

CHAIRPERSON: Are those your fu l l names, Mr P ienaar? André

P ienaar.

MR ANDRé PIENAAR: André Rona ld P ienaar. 20

CHAIRPERSON: Rona ld .

MR ANDRé PIENAAR: Yes , Mr Commiss ioner.

CHAIRPERSON: Do you have any ob jec t ions?

MR ANDRé PIENAAR: No, I do no t , Mr Commiss ioner.

CHAIRPERSON: Do you swear the ev idence tha t you a re about to

22 MAY 2019 – DAY 39

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g ive , w i l l be the t ru th , the who le t ru th , no th ing bu t the t ru th? Ra ise

your r igh t hand and say, so he lp me God.

MR ANDRé PIENAAR: So he lp me God.

CHAIRPERSON: Thank you. You may be seated .

ADV JANNIE LUBBE SC: Thank you, Mr P ienaar. Wi l l you jus t speak

c lose the mic , p lease. I s i t cor rec t tha t you have prepared a

presenta t ion wh ich in essence is the same tha t you presen ted to the

GEPF Board o f Trus tees prev ious ly?

MR ANDRé PIENAAR: That i s cor rec t . I t i s a p resenta t ion I gave to

the board in November 2018. 10

ADV JANNIE LUBBE SC: You were born and bred in th is p ar t o f the

wor ld . I s tha t r igh t .

MR ANDRé PIENAAR: Yes , I have been born in Johannesburg in 1958

and I have l i ved most o f my l i fe in Johannesburg , except fo r twe lve

years in Cape Town.

ADV JANNIE LUBBE SC : Where d id you s tudy?

MR ANDRé PIENAAR: I s tud ied a t S t St i th ians Co l lege in Randburg

and then the Un ivers i t y o f Cape Town and then I wro te the Ac tuar ia l

Exams to the Ins t i tu te o f Ac tuar ies in London.

ADV JANNIE LUBBE SC : And I be l ieved you qua l i f ied in 1986. 20

MR ANDRé PIENAAR: That i s cor rec t .

ADV JANNIE LUBBE SC: Can you jus t te l l the Commiss ion a b i t about

your background as an ac tuary. Where d id you work , your exper ience?

MR ANDRé PIENAAR: I worked a t O ld Mutua l f rom 1981 unt i l ear ly

1993 and then I moved across to A lexander Forbes and I have been

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there now fo r 26 -years and I have been a Pens ion Funds Ac tuary

Va lua tor and Consu l tan t fo r 30 -years now.

ADV JANNIE LUBBE SC: Thank you very much . Can we jus t then

s ta r t w i th your p resenta t ion . The f i r s t page, d iscuss ion i tems is

bas ica l l y th e agenda o f your p resenta t ion . I s tha t cor rec t?

MR ANDRé PIENAAR: That i s cor rec t .

ADV JANNIE LUBBE SC: Can you jus t dea l then w i th your ob jec t i ves

o f your va lua t ion?

MR ANDRé PIENAAR: So , we w i l l l ook a t the th i rd page . Jus t as

background. I th in k a lo t o f what I have covered in the presenta t ion i s 10

fa i r l y techn ica l and w i th the t rus tees . So I w i l l t r y and focus on what I

be l ieve is p robab ly more re levant to your in te res t .

ADV JANNIE LUBBE SC : P lease do so .

MR ANDRé PIENAAR: So in te rms o f the ob jec t i ves . The top one is

rea l l y to inves t iga te the f inanc ia l pos i t ion o f the funds . So i t i s rea l l y a

so lvency tes t . We compare the assets o f the fund to the l iab i l i t i es to

de termine i f the fund is so lvent .

The second ob jec t i ve i s to ana lyse what ha ppened s ince the

prev ious va lua t ion and these va lua t ions are done every two years .

Based on tha t ana lys is and based on changes in the marke t and our 20

pred ic t ions fo r the fu tu re , when then in the th i rd ob jec t i ve rev iew the

assumpt ions to be used and I w i l l l a te r on se t ou t in de ta i l the

assumpt ions .

ADV JANNIE LUBBE SC : And p lease te l l the Commiss ion on what do

you base your assumpt ions .

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MR ANDRé PIENAAR: The assumpt ions a re based on marke t

ind ica tors . So we do no t jus t make them up. We ac tua l l y look a t what

the marke t i s te l l i ng i s in te rms o f bond ra tes fo r examples expec ted

in f la t ion ra tes .

ADV JANNIE LUBBE SC : Thank you.

MR ANDRé PIENAAR: The four th ob jec t i ve i s , we look a t cer ta in

reserves . Now these reserves are no t requ i red to be he ld . They are

n ice to have bu t they are there to p ro tec t the fund and the sponsor ing

employers .

The f i f th ob jec t i ve i s to look a t what cont r ibu t ion ra te , i f 10

requ i red f rom the employers go ing fo rward , to ensure tha t in two years ’

t ime when we do the nex t va lua t ion , the fund w i l l s t i l l be f inanc ia l l y

sound.

And the las t ob jec t i ve i s to ana lyse the na ture o f the

inves tments on a b road base and ensure tha t they are appropr ia te ,

g iven the na ture and dura t ion o f the l iab i l i t i es and tha t we cover in

g rea t de ta i l in pages 17 and 18 o f our va lua t ion repor t .

I f I may cont inue, Mr Commiss ioner?

ADV JANNIE LUBBE SC: Jus t fo r the record . Apar t f rom your

p resenta t ion the fu l l repor t i s a lso a t tached to your p resenta t ion? 20

MR ANDRé PIENAAR: That i s r igh t .

ADV JANNIE LUBBE SC : Thank you.

MR ANDRé PIENAAR: So the nex t few s l ides are rea l l y de ta i l . I t jus t

shows, the nex t one, tha t the ac t i ve membersh ip , those are your

cont r ibu t ing members , s tayed rough ly the same a t 1 .28 mi l l i on over the

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two years .

On the fo l low ing s l i d e we can see tha t there are a number o f

pens ioners . An inc rease f rom 413 000 to 441 000 and obv ious ly the

payro l l s o f the membersh ip and the payro l l s o f the pens ioners

inc reased over the two years .

The fo l low ing s l ide headed: Membersh ip Pens ioners . Jus t

g ives s l igh t l y more de ta i l o f the bu i ld -up o f the pens ioners . The

fo l low ing s l ide i s headed: F inanc ia l Assumpt ions Bes t Es t imated Bas is .

And I am go ing to g i ve i t some t ime . . . [ in te rvenes ]

ADV JANNIE LUBBE SC: Jus t to connec t i t aga in . That i s the 10

assumpt ions tha t you say you ge t f rom the marke ts .

MR ANDRé PIENAAR: That i s r igh t . So these are very long te rm

assumpt ions . So we are look ing a t the nex t 19 to 21 years and the

reason fo r tha t i s , be fore we se t the assumpt ions , we look a t the

average dura t ion o f the l iab i l i t i es . So fo r the pens ioners we have

ca lcu la ted on average tha t the average is about 10 -years .

So i f we look a t the month ly payments we are go ing to be

mak ing to ex is t ing pens ioners and we work ou t the average o f tha t , we

expec t on average to pay pens ioners fo r about 10 -years .

So there may be some very o ld pens ioners who maybe got two 20

or th ree years ’ l i f e expec tancy. Some young pens ioners w i th 30 -years .

On average i t i s about 10 -years .

For the ac t i ve members , we have ca lcu la ted th a t the average

dura t ion i s about 21 -years . So i f you pu t those two groups together,

the average dura t ion o f the average l iab i l i t i es i s a round 19 -years .

22 MAY 2019 – DAY 39

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So w i th tha t as a base, we then look a t the marke ts and say :

What can the fund inves t in to match l ia b i l i t i es fo r 19 -years? And we

s ta r t w i th government bonds as an appropr ia te inves tment fo r the fund,

g iven tha t some o f the l iab i l i t i es a re f i xed in na ture .

What I mean by tha t i s . We know fo r ex is t ing pens ioners we

have to pay a cer ta in Rand pens ion ev ery month i f we ignore inc reases .

When we look a t the ac t i ve members , we know tha t the i r l i ab i l i t i es w i l l

g row because they a re go ing to have ex t ra serv ice every year and fo r a

moment we ignore sa la ry inc reases and on tha t bas is we have cer ta in

f i x l iab i l i t i es tha t we know and there fore government bonds a re 10

appropr ia te .

So we s ta r t w i th the 19 -year government bond ra tes and tha t i s

a 9 .4% in the second row under 2018 Va lua t ion . We then look a t

cer ta in o ther bonds in the marke t . So we look a t , what we c a l l In f la t ion

L ink Bonds , where you can buy an inves tment f rom the government

wh ich g ives you a re tu rn exac t ly equa l to in f la t ion .

And the d i f fe rence be tween those two bond ra tes , the Government Bond

ra tes w i th a 19 -year re tu rn o f 9 .4% o f the va lua t ion da t e , the In f la t ion

L ink Bonds wh ich are the same date , we are g iv ing 2 .4%. the

d i f fe rence is what the marke t i s es t imat ing in f la t ion w i l l average over 20

the nex t 18 to 19 years .

And then we make a smal l ad jus tment because we expec t

inves tors wou ld want a s l i gh t l y h igher re tu rn on bonds than jus t

in f la t ion and tha t i s the o ther ha l f percent .

So the marke t i s say ing , over the nex t 19 -years f rom the va lua t ion da te ,

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they expec t average in f la t ion to be 6 .5% per annum. Now obv ious ly i t

w i l l no t be tha t . Every yea rs i t w i l l be h igher and some years lower

than the o ther years , bu t tha t i s the marke t ’s bes t es t imate .

We then look a t the expec ted inves tment re tu rn over the nex t 19 -years

on the fund. Aga in , we s ta r t w i th the bond ra te o f 9 .4%. we then

expec t then th a t on equ i t ies the fund can do s l igh t l y be t te r because you

wou ld on ly inves t in equ i t ies i f you cou ld a h igher re tu rn than bonds ,

because bonds are sa fer.

And the es t imate tha t we have made, i s tha t , on equ i t ies you w i l l ge t a

3% h igher re tu rn than on bond s . And i f we assume tha t 16% of the 10

fund is inves ted in equ i t ies wh ich has been the average over the las t

number o f the years , 60% of tha t ex t ra 3% means we can add 1 .8%

expec ted re tu rn over the nex t 19 -years .

And then the 9 .4% p lus the 1 .8% g ives us an e xpec ted re tu rn on assets

o f 11 .2%. And then we make a s l igh t l y h igher assumpt ion fo r sa la ry

inc reases . We expec t i t to be 1% above in f la t ion , based on expec ted

long te rm produc t iv i t y and improvements in the count ry.

And then the key number there , i s the one in the grey b lock , 3 .4 .4 . So

we are expec t ing over the nex t 19 -years the inves tment re tu rn to

exceed sa la ry inc reases by 3 .44% per annum. 20

Simi la r l y on pens ioners . Aga in , we expec t ing i t a t 11 .2% the same

re turn . We are expec t ing in f l a t ion inc reases to pens ioners to 80% of

in f la t ion every year wh ich is 5 .2%

Aga in we expec t ing a d i f fe rence be ing the re tu rn ne t o f pens ion

inc reases o f 5 .7%. so those a re the key assumpt ions go ing fo rward on

22 MAY 2019 – DAY 39

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the fund. And aga in , those a re very long te rms assumpt ions . W e do

no t expec t tha t to happen every two years .

So i f we had a two year per iod wh ich we have jus t had where

inves tment re tu rns were be low expec ta t ion , then we wou ld have s l igh t

negat ive improvements in the fund.

Other two year per iod i t wou ld be the revers e and the fund wou ld do

much bet te r than expec ted bu t over the 19 -years on average our bes t

es t imate a re those long te rm re turns .

MR EMANNUEL LEDIGA: Jus t a ques t ion . Th is i s a b roader ques t ion .

Jus t in te rms o f the – th is fund is a Def ined Benef i t Fun d versus a 10

Def ined Cont r ibu t ion Fund. In the de f ined benef i t fund, do the workers

and the pens ioners know the i r amounts? You know, the i r pens ion

amounts?

Because w i th in a DC you w i l l know tha t I have go t R500 00,00

or R1 mi l l i on . But does tha t happen w i th in a Def ined Cont r ibu t ion

Fund? De f ined bene f i t , ja .

MR ANDRé PIENAAR: Mr Commiss ioner, yes . I f the two funds work

very d i f fe ren t ly. Def ined Cont r ibu t ion Fund you w i l l – can see any day

or any month what your sav ings account i s wor th .

Def ined Benef i t Fund is s l igh t l y more d i f fe ren t because we are 20

fund ing towards a p romise fo r when you re t i re . So we are bu i ld ing up

to have the r igh t amount a t the da te tha t you re t i re .

The members are g i ven benef i t s ta tements every year wh ich

w i l l te l l them what they expec t to ge t a t age 60 or a t age 65 , based on

cer ta in assumpt ions bu t they a lso ge t to ld what the i r Rand va lue in the

22 MAY 2019 – DAY 39

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fund is a t the moment where they to res ign .

So they do a lso have access to a Rand amount bu t the focus i s

more on bu i ld ing up enou gh. So by the t ime they re t i re , there i s

enough money to buy the i r p romised pens ion .

Now in the Fund Cont r ibu t ion Fund tha t Rand amount tha t you

can see, i f you go on to the webs i te o f the admin is t ra to r, w i l l f l uc tua te

f rom day - to -day, as inves tment marke ts f luc tua te .

S imi la r l y, the quoted w i thdraw benef i t tha t you can take f rom

the fund when you res ign , cou ld f luc tua te when the ac tuar ia l

assumpt ion has changed. 10

MR EMANNUEL LEDIGA: Okay, tha t i s g rea t . Okay, so I was no t

aware tha t you can ac tua l l y see your money in a Def ined Benef i t Fund.

MR ANDRé PIENAAR: Ja .

MR EMANNUEL LEDIGA: A l l r igh t . Tha t i s good.

MR ANDRé PIENAAR: Okay. So the head ing there was Bes t Es t imate

Assumpt ions . Now ac tuar ies un for tunate ly do no t have c rys ta l ba l l s .

They are mak ing es t imates about the fu tu re based on the pas t and

based on the cur ren t marke ts bu t bes t es t imates shou ld mean, there i s

50% chance o f do ing be t te r and 50% chance o f do ing worse , bu t they

are jus t es t imates . 20

La ter on , I w i l l show you some o f the se ns i t i v i t y ana lyses we

do to ind ica te to the t rus tees how var iab le the resu l t s cou ld be i f the

assumpt ions were to change.

So the nex t s l ides jus t g ives some in fo rmat ion . I d id cover a l l

tha t . So mov ing on to the nex t one wh ich is headed: Va lua t ion Resu l t s .

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MR EMANNUEL LEDIGA: Jus t another ques t ion be fore we go on s l ide

on the F inanc ia l Assumpt ions . Be low there you have go t i l l hea l th and

normal hea l th , you know, ra tes .

I jus t wan ted to check . So th is fund w i l l g ive you a pens ion

bu t i t w i l l g ive you pos t - re t i rement med ica l payments or what i s tha t?

No, no?

MR ANDRé PIENAAR: No, Mr Commiss ioner. Th is i s on ly – the on ly

ob jec t i ve o f the fund is to p rov ide you w i th a pens ion when you re t i re .

Med ica l a id i s a to ta l l y separa te benef i t as p rov ided. So what we mean

a t the bo t tom there i s . 10

We are fund ing fo r the member to ge t to h is normal re t i rement age

wh ich is 60 and then ge t a normal pens ion bu t were he to become

d isab led o r i l l hea l th be fore tha t , he cou ld ge t an ear l ie r pens ion based

on a s l igh t l y d i f fe ren t fo rmula wh ich is s t i l l payab le fo r l i f e bu t i t s ta r ts

be fore h is normal re t i rement age he was expec ted to reach.

MR EMANNUEL LEDIGA: Oh, okay. That i s c learer now. Ja , a l l r igh t .

MR ANDRé PIENAAR: Okay. I d id no t focus much on the

demogr aph ic assumpt ions . They are impor tan t bu t they have less o f an

impac t than the f inanc ia l assumpt ions wh ich I had descr ibed.

The on ly one to be aware o f , i s tha t , there i s an in te rna t iona l 20

t rend fo r pens ioners to l i ve longer and longer. So we need to mak e

assumpt ions about improvements in mor ta l i t y once pens ioners re t i re .

MS JILL MARCUS: Bu t i f you looked a t the fund you are look ing a t in

re la t ion to tha t demograph ic , how does tha t re la te as – because th is i s

a – i f you l i ke a de f ined popu la t ion o f a ce r ta in s tand ing wh ich maybe

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d i f fe ren t f rom your l i f e expec tancy in the popu la t ion as a who le .

So i f one had to look a t th is , what i s the assumpt ion you make

in re la t ion to l i f e expec tancy? And there fore – I th ink i t re la tes to your

ear l ie r ques t ion o f whe ther you fund fo r so many years .

I t i s an assumpt ion… I jus t want to t ry and see my note i s , an

assumpt ion tha t you wou ld fund fo r what per iod o f t ime. You wo ld fund

pens ioners fo r 10 -years .

So the assumpt ion is tha t your longev i t y i s 60 or 65 ,

depend ing on the pens ionab le age fo r a per iod o f 10 -years o r no t?

MR ANDRé PIENAAR: Ma’am, i t i s no t s t r i c t l y cor rec t . When we ta l k 10

about the dura t ion o f a pens ioner, i t i s ac tua l l y the average dura t ion o f

each month ly payment we are go ing to make.

MS JILL MARCUS: Okay.

MR ANDRé PIENAAR: So a 60-year o ld pens ioner, we probab ly expec t

to l i ve fo r about 20 to 22 -years and i f i t i s a male w i th a spouse o f a

few years younger, we expec t to maybe go fo r ano ther f i ve years .

But when we look a t dura t ion , i f we d iscount each month ly

payment… So when I am say ing a dura t ion o f ten , i t cou ld be based on

a l i fe expec tancy o f 20 , bu t we are look ing a t when we expec t to make

the payment . 20

MS JILL MARCUS: When you expec t to pay.

MR ANDRé PIENAAR: Yes .


MR EMANNUEL LEDIGA: I jus t want to check . You know, a re you

p lann ing to dea l w i th th is min imum fund ing leve l la te r? Ja , i s tha t

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cor rec t?

MR ANDRé PIENAAR: [no aud ib le rep ly ]

MR EMANNUEL LEDIGA: Okay. Because I have go t ques t ions there .

MR ANDRé PIENAAR: Okay. I th ink tha t i s covered in the nex t s l ide

wh ich is headed: Va lua t ion Resu l ts . Now these f igures are a l l m i l l i ons .

Now we se t ou t the resu l t s f rom two years prev ious ly and the resu l t s

f rom 31 March 2018.

The very top l ine i s the va lue o f the assets and tha t we obta in

f rom the aud i ted f inanc ia l s ta tements o f the fund. So the fund had

R1,8 t r i l l i on assets a t the va lua t ion da te . 10

The nex t f i ve f igures are a l l the bes t es t imate present va lues

o f the l iab i l i t i es o f the fund as a t the va lua t ion da te and those f i ve

f igures to ta l R 1 ,663 b i l l i on .

So the d i f fe rence is o f assets less l iab i l i t i es i s R 137 b i l l i on .

So the fund was f inanc ia l l y sound. I t was 108% funded i f we ignore any

cont ingenc ies reserves we might want to se t up .

That i s a s l igh t d rop f rom 115% two years prev ious ly, bu t I w i l l

g ive you more ins igh t in to the t rends in a few s l i des t imes .

ADV JANNIE LUBBE SC: So jus t to… I t i s about a 7% drop in the two

years per iod . 20

MR ANDRé PIENAAR: That i s r igh t . And w i l l ex p la in a l so why i t

d ropped. We then look a t the recommended or des i red reserves tha t

we wou ld l i ke to ho ld in the fund and they are se t ou t be low there .

The main one is the so lvency reserve wh ich is there as a

bu ffe r in case the assumpt ions tu rn ou t to be gross ly incor rec t and the

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two b igges t r i sks are normal ly ment ioned there , a re pens ioners l i v ing

longer than expec ted and a ca tas t rophe in the inves tment marke ts .

Bu t those are n ice to have. I f you have no t go t them i t does

no t mean tha t your fund is un sound because the assets s t i l l exceeds

the l iab i l i t i es .

So i f the fund were to cont inue and a l l our assumpt ions prove

ou t to be exac t ly co r rec t , there i s enough money in the fund to pay a l l

the ex is t ing members fo r the res t o f the i r l i ves .

But as you see the fund ing leve l be fore reserves went f rom

115% to 108%. The fund ing leve l a f te r the des i red reserves f rom 0 .9% 10

to 75%.

MS JILL MARCUS: When you say des i red reserves , i s tha t an

assumpt ion tha t , tha t w i l l be made? You have go t i t in red .

MR ANDRé PIENAAR: No, sor ry. The red is there because tha t f igure

was prov ided a t the las t m inu te by the asset consu l tan ts . So th is was a

second presenta t ion we d id . So we jus t pu t in the red f igures because

they were the f igures tha t came in very la te .

I t does no t have any re levance, the co lour to the pos i t ion o f

the fund.

ADV JANNIE LUBBE SC : In o ther words . . . [ in te rvenes ] 20

MS JILL MARCUS: So those shou ld be t rea ted as the same. That in

ac tua l fac t the 301 has become 402.

MR ANDRé PIENAAR: That i s r igh t . Yes .


MR ANDRé PIENAAR: Madam Commiss ioner, yes .

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MR EMANNUEL LEDIGA: So can one then say tha t rea l l y the b igges t

f igure to wor ry about i s the min imum fund ing leve l wh ich is the 108%?

MR ANDRé PIENAAR: That i s cor rec t , Mr Commi ss ioner.

MR EMANNUEL LEDIGA: I f tha t goes be low 100%. That i s when you

shou ld wor ry because then your l iab i l i t i es a re h igher than the assets .

MR ANDRé PIENAAR: Yes , Mr Commiss ioner. A l though the funds

ta rge t , i s tha t , there shou ld never go be low 19%/90%.

MR EMANNUEL LEDIGA: Oh, okay. Ja , a l l r igh t .

MR ANDRé PIENAAR: The log ic there i s tha t , as long as you have go t

a la rge sponsor ing employer s tand ing beh ind the fund, who is w i l l i ng to 10

put in money to make up any shor t fa l l , then there i s no need f o r any

concern .

The concern wou ld be i f the fund d id ge t to a low fund ing leve l

and the employer sa id : We cannot a f fo rd to pu t money in . And then

you have a shor t fa l l . Bu t i f we . . . [ in te rvenes ]

MS JILL MARCUS: Who is the las t t ime… Sor ry.

MR EMANNUEL LEDIGA: Ja , ja .

MR ANDRé PIENAAR: Bu t i f you look a t the s i tua t ion e lse where in

the wor ld , i t i s no t s tandard prac t i ce tha t every government fu l l y

p re funds the i r Government Employees Pens ion Fund. Many count r ies 20

opera te on the bas is o f a pay -as-you-go-bas is .

That they on ly pay in money when i t i s needed to pay benef i t s .

So we are in a fo r tunate pos i t ion tha t our government has pre funded

the l iab i l i t i es and there i s enough money to cover the l iab i l i t i es i f the

fund has a l ready acc rued fo r a l l the ex is t ing members and pens ioners .

22 MAY 2019 – DAY 39

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MR EMANNUEL LEDIGA: Le t us fo l l ow up there . So when can i t

happen tha t the government can be ca l led on to make good on the

fund? A t what percentage leve ls?

MS JILL MARCUS: Can I add to tha t? When was the las t t ime, i f i t

was done, tha t th is fund needed to be topped up?

MR ANDRé PIENAAR: Okay. I , un for tunate ly, Madam Commiss ioner,

have on ly been the ac tuary s ince las t Apr i l bu t I was asked by the

GEPF to do a paper jus t to exp la in the t rends bu t we on ly l ooked back

as fa r as 2006 and the min imum fund ing leve l go t as low as 102% in

March 2012 and 108% in March 2010. 10

So we are back a t those leve ls bu t there were some va lua t ions

where i t was as h igh as 120%. So we are no t in a very d i f fe ren t

pos i t ion to where the fun d was 7 or 9 years ago.

As w i th regards to the long te rm fund ing leve l wh ich is now a t

75.5% tha t go t as low as 70% in 2012. To answer the Commiss ioner ’s

ques t ion as to when someth ing wou ld need to happen.

My unders tand ing is tha t the po l i cy o f the fund is to a lways

ta rge t to be leas t 90% funded on the min imum fund ing leve l . So a t tha t

s tage, the re wou ld have to be a ser ious meet ing be tween the t rus tees

and the employers bu t every year those d iscuss ions do take p lace and 20

the employers p rov ide the i r inpu t as to how to take the fund fo rward .

MR EMANNUEL LEDIGA: So i f we had to reach 85% min imum fund ing

leve l , then somehow the government wou ld have to come in and maybe

to inc rease the cont r ibu t ions poss ib le?

MR ANDRé PIENAAR: That i s r igh t , Mr Commiss io ner. Ru le 7 .2 o f the

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Funds Ru les wh ich I have go t on a la te r s l ide , says tha t :

“The employer ’s con t r ibu t ions shou ld be su ff i c ien t to ensure tha t the

fund is ab le to meet i t s ob l iga t ions a t a l l t imes , sub jec t to a min imum

fund ing leve l o f 90%. . . ”

So , tha t i s rea l l y the pr imary fund ing ob jec t i ve o f the fund.

MS JILL MARCUS: So mean ing tha t then the taxpayers w i l l have to

fund tha t d i f fe rence be tween be low the 90%? Ja?

MR ANDRé PIENAAR: That i s r igh t , Mr Commiss ioner.

MR EMANNUEL LEDIGA: Through taxes or th rough debt o r whatever,

ja? 10

MR ANDRé PIENAAR: Yes . I t does no t have to be done immedia te l y.

There cou ld be a scheme to pay an ex t ra 2% or 3% cont r ibu t ion fo r a

number o f years . So there are many d i f fe ren t ways to make i t up , yes .

MR EMANNUEL LEDIGA: Thank you.

ADV JANNIE LUBBE SC: Bu t as you say, accord ing to the research

you have done in the pas t decade, i t was no t necessary to top up the

fund.

MR ANDRé PIENAAR: I t has no t been necessary fo r a t leas t the las t

15-years . So on the nex t s l id e I have g iven some t rends and they do

look d is tu rb ing , in tha t a l l the percentages are dropp ing . 20

I have jus t po in ted ou t jus t be fore 2014, the fund was in a

s im i la r pos i t ion to where i t was now. So i f we look a t the min imum

fund ing leve l . I t has droppe d f rom 121% in 2014 to 108% now but in

2010 i t was 108% and in 2012 102.7%.

The long te rm fund ing leve l has dropped f rom 83% to 75% over

22 MAY 2019 – DAY 39

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the las t four years bu t in 2010 i t was 74% and in 2012 70%. So

a l though the fund is no t as we l l funded as members and the employers

wou ld l i ke , the assets do exceed the l iab i l i t i es by qu i te fa i r marg in s t i l l .

MR ANDRE PIENAAR: Okay, in the nex t s l ide we ta lk about

the so lven t reserve wh ich is as I ment ioned is the b igges t reserve . And

we look a t a number o f methods o f ca lcu la t ing i t bu t the t rus tees have

in the pas t used the asset consu l tan ts to do cer ta in s tochas t ic

mode l l i ng wh ich I ca l l the asset l iab i l i t y mode l l i ng approach. And tha t ' s

where the 402 b i l l i on rand f igure came in . And aga in , i t ' s in red jus t

because i t was added a t the las t m inu te and over the page is a b i t more 10

deta i l . On the o ther cont ingent reserves and aga in , jus t to po in t ou t

tha t the second las t co lumn headed 31 March 2018 requ i red is a

des i rab le o r recommended reserves or le t ' s ca l l i t n ice t o have

reserves . And the very las t co lumn is what i s cur ren t ly a f fo rdab le . So

we take the d i f fe rence be tween the assets and l iab i l i t i es , tha t ' s wha t

the fund has ava i lab le to cover cont ingen t reserves a t the moment .

ADV JANNIE LUBBE SC : Yes , thank you . You can proceed.

MR EMMANUEL LEDIGA: Jus t in te rms o f the long te rm fund ing ra te .

Jus t exp la in i t aga in . Why do we need to wor ry about tha t i f we 've go t

the min imum fund ing ra te sor ted ou t? 20

MR ANDRE PIENAAR: Mr Commiss ion , i t s in te rna t iona l bes t p ra c t i ce

and the recommendat ion o f the F inanc ia l Sec tor Conduc t Author i t y tha t

you don ' t on ly ho ld enough assets to cover the l i ab i l i t i es bu t you have a

smal l bu f fe r o r ex t ra marg in as we l l . The way I no rmal ly descr ibe i t to

c l ien ts i s to say, we f i r s t do th e va lua t ion on the bes t es t imate

22 MAY 2019 – DAY 39

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assumpt ions . We then do the va lua t ion a second t ime on more

conserva t ive assumpt ions , the b ig th ings tha t cou ld go wrong. And the

d i f fe rence be tween those two va lua t ions i s what - a re the reserves tha t

we wou ld recommend h o ld ing i f you can a f fo rd i t . So i t i s des i rab le to

move towards hav ing those reserves bu t even the FSCA wou ld no t see

a fund as unsound i f i t d idn ' t ho ld the reserves . Because the key th ing

is tha t the assets must exceed the l iab i l i t i es on the bes t es t im ate bas is .

MR EMMANUEL LEDIGA: And in tha t 75% makes to move to 100% is

tha t the normal cover ing bo th the min imum fund ing leve l and the

cont ingenc ies? 10

MR ANDRE PIENAAR: That ' s cor rec t . The des i red leve l i s to cover the

l iab i l i t i es in fu l l and the reco mmended reserves .

MR EMMANUEL LEDIGA: Bu t the Government doesn ' t have to pu t

ac tua l money. I t mus t jus t be t racked and aud i t and see where the

number i s go ing , i sn ' t i t ?

MR ANDRE PIENAAR: That wou ld be my v iew, Mr Commiss ioner, yes .

As long as the Go vernment as a sponsor ing employer i s aware o f the

pos i t ion and unders tands tha t shou ld tha t min imum fund ing leve l d rop

be low 90% or even 100%, they wou ld need to be in a pos i t ion to he lp

an ge t the pos i t ion back to a 100% funded. 20

MS GILL MARCUS: Bu t tha t wou ld be someth ing tha t wou ld be p lanned

over a number o f years . I t wou ldn ' t be someth ing tha t says by th is nex t

va lua t ion we have to be a t the 100%. I t ' s someth ing tha t sa id we ' re

address ing th is and over the nex t few years , th is i s what wou ld come

back to the leve ls .

22 MAY 2019 – DAY 39

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MR ANDRE PIENAAR: That ' s cor rec t , Madam Commiss ioner. I f we

look a t p r i va te sec to r funds the FSCA wou ld normal ly g ive the fund n ine

years to ge t back to a fu l l y funded pos i t ion i f i t fe l l i n to a de f ic i t . So

there mus t be a p lan be tween t he employer and the t rus tees and the

ac tuary to move towards tha t pos i t ion , i t doesn ' t have to do i t

overn igh t . Okay, go ing on to the fo l l ow ing s l ide wh ich is headed in

ana lys is o f the pro f i t s and losses . Th is jus t exp la ins how the pos i t ion

changed over the two years . So i f you reca l l we had a 227 b i l l i on rand

excess o f assets over l iab i l i t i es in 2016 wh ich is the top l ine on tha t

page. I f we jus t move fo rward two years and look a t what we expec ted 10

the fund to earn . Now in the prev ious va lua t ion , the l ong te rm

inves tment re tu rn i s 12 .5%, we wou ld have expec ted to now be in a

pos i t ion o f 281.9 b i l l i on excess or a l l o ther th ings be equa l . So i f every

ac tua l assumpt ion made in 2016 had been borne ou t exac t ly in p rac t i ce ,

tha t ' s where we 'd be now. But as we know th ings don ' t happen tha t

way, the ac tua l exper ience can be very d i f fe ren t to what ' s expec ted .

And so there we exp la in why we 've go t 137 mi l l i on excess now not 281.

And the b igges t reasons a re the ones h igh l igh ted in bo ld say

inves tment re tu rns ov er the two years average 6 .5% per annum versus

expec ta t ion o f 12 .5% per annum. And tha t caused a negat ive impac t o f 20

225 b i l l i on . That was s l igh t l y o f f se t by the nex t l ine in tha t th rough the

changes and in te res t ra tes over the two years wh ich wou ld a f fec t the

l iab i l i t i es go ing fo rward , there was a pos i t i ve impac t o f 81 b i l l i on . I t ' s

rea l l y the d i f fe rence tha t ' s impor tan t . So we had 140 b i l l i on negat ive

impac t bas ica l l y due to inves tment marke ts . And most o f tha t wou ld be

22 MAY 2019 – DAY 39

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due to what was happen ing g loba l l y in tha t inves tment re tu rns o f the

las t four o r f i ve years have been d isappo in t ing . In fac t our loca l s tock

marke t where the fund has 60% of i t s assets inves ted , has hard ly

beaten in f la t ion o f the las t f i ve years . So i t ' s been a d isappo in t ing

marke t impac t wh ich caused us th is change. And there are few o ther

smal le r i tems wh ich are very smal l compared to the those two la rge

ones .

MR EMMANUEL LEDIGA : Can you say tha t 6 .5% re turn i s tha t what

the P IC genera ted fo r the GEPF?

MR ANDRE PIENAAR: That was a re tu rn , yes tha t the fund earned on 10

i t s assets over the two years .

MR EMMANUEL LEDIGA: Over the two years , yes .

MR ANDRE PIENAAR: I th ink i t was 4 po in t someth ing on the one year

and 8 po in t someth ing on the o ther year. I t ' s a l l se t ou t in the de ta i l ed

repor t . Bu t the average o f the two years was 6 .5% per

annum. . . ( in te rvent ion)

MR EMMANUEL LEDIGA: 6 .5% percent , okay.

MR ANDRE PIENAAR: Net t o f any inves tment fees tha t a re pa id .

Okay, the fo l low ing s l ide i s rea l l y de ta i l , i t ' s ca l l ed a Not iona l Pen s ion

Accumula t ion Account . I t jus t shows what the pos i t ion o f the 20

pens ioners in the fund wou ld be i f the pens ioners had the i r own

separa te fund. So i t ' s more as background fo r the t rus tees than o f

re levance I th ink today. And in the nex t two s l ides or t h ree s l ides se t

ou t what the employers shou ld be cont r ibu t ing go ing fo rward . So tha t

they ' re cover ing exac t ly the new benef i t s tha t a re be ing genera ted each

22 MAY 2019 – DAY 39

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year. Now we f i r s t look a t a combined bas is because they ' re ac tua l l y

two groups o f d i f fe ren t memb ers wh ich I ' l l exp la in la te r. So the

requ i red employer cont r ibu t ion ra te was 15 .6% in 2016, i t ' s d ropped to

15 .2% 2018 main ly due to the changes and in te res t ra tes go ing fo rward

and the cur ren t employer cont r ibu t ion i s 13 .5%. So the employer i s

s l igh t l y under cont r ibu t ing as i t has been done fo r many years bu t i t i s

an improvement over the las t two years . I f we move on two s l ides , we

jus t show tha t sp l i t because you have two groups o f members in the

GEPF. We have the , what we ca l l the Serv ices Members a nd the Other

Members , there 's a s l igh t d i f fe rence in the benef i t s o f the two and so 10

they ac tua l l y have the i r own cont r ibu t ion ra tes . So tha t jus t shows

more de ta i l . So the employer ' s ac tua l l y cont r ibu t ing 16% for Serv ices

Members and 13% for Other Member s bo th o f wh ich are s l igh t l y lower

than what i s requ i red go ing fo rward . So i t ' s the same po in t as two

s l ides ear l ie r. And we do show somewhere in the repor t the impac t o f

the employer cont inu ing to under cont r ibu te . In fac t i t ' s on a s l ide

la te r. I t wo u ld cause the min imum fund ing leve l to decrease by po in t

3% per annum i f tha t cont inues .

MR EMMANUEL LEDIGA: Jus t another ques t ion here . Th is

Commiss ion is look ing a t some inves tments o f the P IC and what 20

appears in the communi t ies tha t th is fund is los ing money and i t w i l l be

bankrupt a t some po in t . Bu t what I wanted to ask you is there are

many ways tha t the min imum fund ing leve l can go down. Can you

exp la in to us what can cause a pens ion fund to go down in te rms o f

fund ing leve ls? Because I th ink p eop le focus jus t on the inves tments

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par t .

MR ANDRE PIENAAR: Thank you Mr Commiss ioner. I f we go back to

the s l ide , about four s l ides back , headed ana lys is o f the pro f i t s and

losses . So bas ica l l y any impac t where the ac tuar ies made an

assumpt ion and the ac tua l exper ience i s a lo t worse than tha t , cou ld

cause a fund ing leve l to d rop . So the b igges t one wou ld be inves tment

re tu rns . So the ac tuary es t imates fu tu re inves tment re tu rns f rom the

marke ts , we then have a ca lami ty in the wor ld , 2008 f inanc ia l c r i s is .

Las t year most asse t c lasses around the wor ld gave negat i ve re tu rns

no t jus t in South A f r i ca . So any negat ive impac t on inves tment marke ts 10

would have an impac t on the fund because you ' re genera t ing a lower

re tu rn than you an t ic ipa ted . But there are many o thers tha t cou ld

cause i t , as I ment ioned ear l i e r, pens ioners l i v ing longer than expec ted .

So i f we expec t the average pens ioner a t 60 to l i ve fo r 22 years . And a

new drug wh ich had come out wh ich wou ld add f i ve years to the

average l i fe t ime o f ev ery pens ioner, tha t cou ld bankrupt the fund

because i t wou ld add a huge ex t ra l iab i l i t y. Sa la ry inc rease is another

one, you make assumpt ions about fu tu re sa la ry inc reases . I f the sa la ry

inc reases is much h igher than an t ic ipa ted tha t causes l iab i l i t i es t o g row

fas ter than expec ted . So a l l o f the main assumpt ions we make i f they 20

move aga ins t the fund in tha t sa la ry inc reases a re h igher, pens ion

inc reases are h igher, l i ve expec tancy is longer, inves tment re tu rns are

lower, they cou ld cause the fund ing leve l to d rop .

MR EMMANUEL LEDIGA: And i f the pens ion fund has go t un l i s ted

inves tments o f say 100 b i l l i on or somewhere there and 3 b i l l i on i s los t

22 MAY 2019 – DAY 39

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there in N iger ia and 2 b i l l i on i s los t somewhere . Can th is pu t the fund

in ser ious danger?

MR ANDRE PIENAAR: I f asse ts tu rn ou t to be bad inves tments and the

fund loses money i t wou ld reduce a re tu rn earned by the fund wh ich w i l l

impac t on the fund. But the amounts tha t you 've ment ioned wou ld no t

have ins ign i f i can t impac t on the fund ing leve l because I th ink i f you

take a 6 b i l l i on rand loss , i t wou ld be po in t po in t po in t someth ing

impac t on the fund. So i t i s a ser ious amount o f money bu t g iven the

s ize o f th i s fund i t wou ld no t have a huge impac t on the fund ing leve l o f

the fund. 10

MR EMMANUEL LEDIGA: Thank you.

MR ANDRE PIENAAR: There i s a s l ide headed sens i t i v i t y ana lys is and

a l l tha t does is show the impac t on the fund ing leve ls o f s l igh t l y

d i f fe ren t assumpt ions . So i t ' s more as background fo r the t rus tees to

show wh ich are the more ser ious assumpt ions and what cou ld happen i f

those assumpt ions proved to be incor rec t . So when the ac tuary comes

up w i th a f igure fo r a fund ing leve l , i t ' s jus t an es t imate us ing h is bes t

es t imate assumpt ions go ing fo rward . I t doesn ' t mean tha t ' s exac t ly

what the fund pos i t ion i s . You w i l l on ly know whether there 's enough

money to cover a l l the l iab i l i t i es when the las t member and pens ioner 20

have d ied or le f t the fund so in 100 years t ime. So i t ' s a very d i f f i cu l t

s i tua t ion to exp la in to t rus tees tha t you ' re mak ing bes t es t ima tes ,

you ' re coming up w i th f igures bu t you can ' t say ca tegor ica l l y tha t the

fund is 108.3% funded because i t ' s based on many assumpt ions about

the fu tu re .

22 MAY 2019 – DAY 39

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MR EMMANUEL LEDIGA: Jus t coming back to the dangers tha t the

fund faces i f th ings don ' t go r igh t . Wou ld you say tha t the JSE the

s tock marke t i s more o f a b igger danger to the fund than the pr iva te

equ i t y s ide , the un l i s ted s ide?

MR ANDRE PIENAAR: Yes , Mr Commiss ioner I ' l l have to agree w i th

tha t . I f you cons ider tha t the un l i s ted inves tments a re a smal l

percentage o f the fund whereas the JSE exposure i s about 60% of the

fund. I f the JSE were to fa l l 5%, tha t wou ld have a much b igger impac t

than a few un l i s ted inves tments be ing bad inves tments .

MS GILL MARCUS: Sor ry, you may have covered i t and I m igh t no t 10

have fo l lowed i t p roper ly. What i s the p ropor t ion o f the fund ing fo r the

fund as a who le o f cont r ibu t ion Government pens ioner cont r ibu t ion and

inves tment cont r ibu t ion? I f you had to look a t the fund as a who le ,

100% of fund ing wou ld be the com binat ion o f inves tment earn ings ,

Government cont r ibu t ion , pens ioner cont r ibu t ion . What i s the

percentage between what i s regu lar ly deduc ted and goes in the fund as

we l l as the percentage tha t wou ld be fo rmed f rom your var ious

inves tments in to ta l?

MR ANDRE PIENAAR: Madam Commiss ioner, i t ' s a very in te res t ing

ques t ion and I can ' t answer i t . Bas ica l l y the members pay a f i xed 20

cont r ibu t ion ra te , I th ink i t ' s . . . ( in te rvent ion)

MS GILL MARCUS: Members I th ink i s 5% and Government i s 15 or i t

was a t one po in t i t m igh t be d i f fe ren t . Bu t i f I remember in the pr iva te

sec tor i t wou ld be up to ind iv idua ls can cont r ibu te up to 7 .5% and.

MR ANDRE PIENAAR: Okay. In th is fund the members cont r ibu te

22 MAY 2019 – DAY 39

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7.5%.

MS GILL MARCUS: R igh t and the Government 15%.

MR ANDRE PIENAAR: The Government pays 13% for Other Members

and 16% for Serv i ces Members .

MS GILL MARCUS: Okay, so tha t as a - tha t i s a month ly f low in to the

fund?

MR ANDRE PIENAAR: That ' s r igh t . So o f every member

sa la ry. . . ( in te rvent ion )

MS GILL MARCUS: That i s ded uc ted and goes in to the fund .

MR ANDRE PIENAAR: About 22 .5% o f these sa la r ies go ing in to the 10

fund.

MS GILL MARCUS: Goes in . R igh t .

MR ANDRE PIENAAR: And then the inves tment re tu rns are added to

the assets bu t I can ' t g ive you the mix .

MS GILL MARCUS: Bu t I wou ld be in te res ted in the propor t ion as to

what i s the dependence - the ques t ion I 'm rea l l y ask ing is what i s the

dependency on earned inves tment to keep the fund leve l a t what i t i s as

d is t inc t f rom tha t month ly con t r ibu t ion? I s there a way you cou ld look

a t tha t and come back to us? I s tha t poss ib le?

MR ANDRE PIENAAR: Madam Commiss ioner we can t ry, i t ' s no t 20

someth ing we norma l ly do . To me the key f igures a re i f you go back to

our bes t es t imate assumpt ions . What we need is the fund 's inves tment

re tu rns to be 3% to 5% above in f la t ion , tha t ' s the most impor tan t aspec t

to the fund.

MS GILL MARCUS: I unders tand tha t bu t my ques t ion i s the

22 MAY 2019 – DAY 39

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dependency on month ly cont r ibu t ions tha t come in , assume tha t tha t

fo rms 80% of the fund. I 'm jus t mak ing an as sumpt ion , i t ' s go t no

va l id i t y to tha t . That your month ly cont r ibu t ions con t r ibu te 80% of what

your requ i rement wou ld be . And a t 20% i t depends on the var ious

inves tments to make sure tha t you reach your as i t i s 108% of fund ing .

So I 'm jus t t r y ing to u nders tand or ge t a be t te r g r ip on what i s the leve l

o f dependency on the f inanc ia l marke ts as d is t inc t f rom the regu lar f l ow

in f rom the normal deduc t ions . And i f i t ' s no t poss ib le , tha t ' s okay. But

i t wou ld jus t be someth ing I was jus t cur ious about .

MR ANDRE PIENAAR: I f we look a t the assets o f the fund i t wou ld be 10

1.8 t r i l l i on and we assume tha t we ' re look ing a t a re tu rn o f by 11% per

year. We wou ld expec t 198 I 'm guess ing tha t ' s b i l l i on rand a year

coming in inves tment re tu rns . The con t r ibu t ions co ming in to the fund

are about 65 b i l l i on rand a year. So inves tment re tu rns - they ' re

expec t ing these re tu rns about th ree t imes the cont r ibu t ion in f l ow.

MS GILL MARCUS: So i t ' s th ree to one, rea l l y speak ing .

MR ANDRE PIENAAR: That ' s r igh t .

MS GILL MARCUS: Your cont r ibu t ion i s 25% and your i nves tment i s

75%.

MR ANDRE PIENAAR: That ' s r igh t , Madam Commiss ioner. 20

MR EMMANUEL LEDIGA: Jus t to fo l low up there . Can i t happen tha t

the inves tment re tu rn i s lower than the benef i t s pa id ou t? Sor t o f the

re tu rn p l us the cont r ibu t ions a re lower than the benef i t s pa id ou t? Can

i t happen?

MR ANDRE PIENAAR: Mr Commiss ioner, i t cou ld happen. In fac t I ' ve

22 MAY 2019 – DAY 39

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got many c l ien ts where there are most ly on ly pens ioners le f t and no t

members . So you 've go t no cont r ibu t ions comi ng in bu t you ' re pay ing

ou t la rge amounts in pens ions to the pens ioners wh ich is no t an issue.

Because we va lue the fund, we va lue each member and pens ioners

l iab i l i t y and i f there were no ac t i ve members le f t and no con t r ibu t ions

coming in . As long as we 've se tup enough money to pay each

pens ioner fo r l i f e , i t doesn ' t mat te r tha t we ' re pay ing ou t a lo t more in

benef i t s than we ' re ge t t ing in on cont r ibu t ions inves tment income. I t

w i l l j us t impac t on the l iqu id i t y o r the cash f low and mean tha t you 've

go t to ho ld more l iqu id inves tments than i l l i qu id ones . Bu t i t doesn ' t 10

rea l l y mat te r i f the cash f low becomes negat ive .

MR EMMANUEL LEDIGA: Meaning tha t fo r the GEPF g iven tha t the

pens ioners are on ly 400 000 and you 've go t wha t 1 .2 mi l l i on members

tha t - the cont r ibu t ions w i l l keep coming.

MR ANDRE PIENAAR: Mr Commiss ioner, yes a t the moment the fund

is ge t t ing in as I sa id 65 mi l l i on in cont r ibu t ions every year. I t ' s pay ing

ou t pens ions o f 38 b i l l i on a year bu t there are o ther benef i t s as we l l

wh ich are about 60 b i l l i on a year. So a l ready the ou t f low is rough ly

equa l to the in f low but aga in i t ' s no t ser ious as long as the t rus tees and

the asset managers are aware o f the l iqu id i t y i ssues and make sure 20

tha t the assets tha t they ' re ho ld ing are appropr ia te t o p rov ide the

l iqu id i t y to pay bene f i t s . Okay, the las t few s l ides bas ica l l y cover the

cer t i f i ca t ions by the ac tuar ies and i t s a l l g round tha t we have covered.

I t ta lks about the d i f fe ren t fund ing leve ls wh ich is the most impor tan t .

I t ta lks about what the ru les cover wh ich I ' ve covered. And bas ica l l y

22 MAY 2019 – DAY 39

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we' re cer t i f y ing tha t we be l ieve the fund is f inanc ia l l y sound because

the assets cover the l iab i l i t i es . We cer t i f y tha t the asset s t ruc ture or

the inves tment s t ra tegy is appropr ia te based on the na ture a nd dura t ion

o f the l iab i l i t i es . And apar t f rom the fac t tha t the employer i s s l igh t l y

under con t r ibu t ing and we po in t ou t the impac t o f tha t . We had no

o ther concerns about the f inanc ia l pos i t ion o f the fund.

ADV JANNIE LUBBE SC: Bu t I th ink tha t perh aps the b igges t concern

and aga in i t ' s a long te rm mat te r, i s tha t the fund there fore does no t

meet i t ' s long te rm fund ing ob jec t i ve a t the va lua t ion da te .

MR ANDRE PIENAAR: That i s cor rec t . We wou ld pre fer to be c loser to 10

100%, why is the ac tuary and I 'm sure the employers and members

c loser to 100% funded inc lud ing a l l the recommended reserves . But as

I sa id , we have to ba lance tha t aga ins t the needs o f the employers , the

needs o f the count ry and there are many compet ing in te res t fo r those

add i t iona l cont r ibu t ions .

MR EMMANUEL LEDIGA: A l r igh t , I ' ve go t two ques t ions on the asset

s ide and I hope you can answer i t because I th ink the GEPF wi l l

p robab ly be here too to look a t tha t . Pens ion funds need to d ivers i f y

the i r r i sk . So jus t in te rms o f the g loba l a l loca t ion and the sor t o f

A f r i ca g loba l and the Af r i ca a l loca t ions , I th ink they ' re c lose to 5% each 20

or so . Are we happy w i th tha t amount o r tha t needs to inc rease and I

hope the un ions are no t go ing to k i l l me fo r th is . Because when you

look a t var ious pens ion funds , the i r g loba l por t ions go to 20% 30%. So

can you p lease jus t c la r i f y tha t fo r me?

MR ANDRE PIENAAR: Thank you, Mr Commiss ion . Yeah, i f you look

22 MAY 2019 – DAY 39

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at wor ldwide exper ience the research shows tha t to p roper ly d ivers i f y a

fund, you proba b ly want 30 to 40% of the assets ou ts ide o f the count ry.

Now there i s a b i t o f a cont rad ic t ions there because a l l the l iab i l i t i es

a re in Sou th A f r i ca in rand. So i f you ' re ho ld ing assets ou ts ide you are

mismatch ing f rom a cur rency po in t o f v iew. But as you r igh t l y say, in

te rms o f a d ivers i f i ca t ion o f r i sk you don ' t want to have a l l your eggs in

one basket . So inves t ing o f f shore does g ive the fund access to

indus t r ies we haven ' t go t in South A f r i ca l i ke . . . ( in te rvent ion)

MR EMMANUEL LEDIGA: Sec tor, App l e and Goog le and.

MR ANDRE PIENAAR: IT and aerop lanes ' a re the two ones tha t a re 10

of ten ment ioned. So i t g ives you broader d ivers i f i ca t ion i t a l so means

tha t i f someth ing happens to the South A f r i can economy fo r po l i t i ca l o r

economic reasons , the fund has a pro tec t ion o f hav ing assets

d ivers i f ied . So recogn is ing tha t p r iva te sec tor pens ion funds are

a l lowed to inves t up to 30% o f the i r assets ou ts ide South A f r i ca p lus

another 10% in A f r i ca . So they cou ld have up to 40%. Typ ica l l y mos t

funds tha t I 'm inv o lved w i th have c lose to 30% outs ide o f South A f r i ca

p lus maybe 2 to 4% in A f r i ca because A f r i ca i s seen as more i l l i qu id

and the marke ts a re very smal l . South A f r i ca ' s s tock exchange is

b igger than the res t o f A f r i ca pu t together. So i t ' s very d i f f i cu l t to ge t a 20

meaning fu l exposure . But to answer your ques t ion , yes , mos t funds

have c lose to 30 to 35% of the i r inves tments ou ts ide o f South A f r i ca .

The GEPF I be l ieve in te rms o f i t s po l i c ies can go up to 10%. We do

make a po in t in the repor t on page 18 t o say the fund ho lds a lower

percentage o f fo re ign assets than might o therw ise be sugges ted , pure ly

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i n te rms o f the r i sk d i vers i f i ca t ion o f asse ts .

MR EMMANUEL LEDIGA: Then the f ina l ques t ion f rom me is on

un l i s ted inves tments and pr iva te equ i t y and ven tu re cap i ta l . I 'm sure

you know tha t mos t funds in the coun t ry they go t low wa i t ing and

pr iva te equ i t y a l te rna t ive inves tments and I th ink the PIC has go t abou t

5% there . But i f you look g loba l l y they ' re go ing fo r 10% 15% or so . Do

you th ink GEPF and br oad ly the o ther funds , Shopr i te pens ion funds ,

S tandard Bank pens ion fund shou ld inc rease tha t por t ion sor t o f

p rogress ive ly.

MR ANDRE PIENAAR: That ' s a very ques t ion Mr Commiss ioner. What 10

we are f ind ing is tha t the g loba l inves tment marke ts have moved t o a

much lower leve l o f re tu rn than what we 've go t used to . So we had a

very fo r tunate per iod f rom 2003 to 2018 where re tu rns o f ten were

be tween 10 and 20% per annum. Go ing fo rward most inves tment

exper ts don ' t expec t tha t . So we ' re look ing a t much lowe r nomina l

re tu rns and rea l re tu rns go ing fo rward . So funds need to f ind d i f fe ren t

ways to genera te h igher re tu rns and many commenta tors see venture

cap i ta l and th is inves tment as a way to do tha t . Because o f the i r

na ture be ing s l igh t l y h igher r i sk no t l i s ted so i t ' s less exposure to the

marke ts , you expec t a h igher re tu rn . So we are see ing more and more 20

funds look ing fo r o ther oppor tun i t ies to genera te a h igh inves tment

re tu rn . How fa r they go and what percentage o f assets i s up to each

board o f t rus tees .

MR EMMANUEL LEDIGA: Thank you very much.

ADV JANNIE LUBBE SC : I f there are no fu r ther ques t ions Mr

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Commiss ioner, tha t ' s the ev idence.

CHAIRPERSON: I s tha t the ev idence?

ADV JANNIE LUBBE SC: Yes , and I want to thank the w i tness fo r

ass is t i ng us on very shor t no t i ce because o f o ther w i tnesses tha t cou ld

no t be ava i lab le today and fo r h is ass is tance in tha t regard .

CHAIRPERSON: What ' s h is name aga in? P ienaar. Yes Mr P ienaar, I

echo the words thank ing you fo r be ing ava i lab le a t shor t no t i ce . And

thank you so much fo r the ev idence tha t you have g iven. You w i l l have

no t iced tha t I kep t qu ie t . I don ' t know much about inves tments because

I don ' t have money. But thank you once aga in and p lease be prepared 10

i f we were to ask you to come back to c la r i f y cer ta in aspec ts , p lease do

so . Otherw ise you ' re excused .

MR ANDRE PIENAAR: Thank you, Mr Commiss ioner. Jus t to c la r i f y

there no ou ts tand ing ques t ions tha t I need to come back on? Okay.

ADV JANNIE LUBBE SC: Thank you, Mr Commiss ioner. That ' s the

bus iness fo r the day. And as d iscussed yes terday the Commiss ion w i l l

no t s i t tomor row, we w i l l resume on Monday a t 10 o 'c lock .

CHAIRPERSON: On Monday the 27 th .

MS GILL MARCUS: Yes .

MR EMMANUEL LEDIGA: Cor rec t yes . 20

CHAIRPERSON: The Commiss ion ad journs un t i l Monday the 22 - the

27 th , I 'm sor ry, a t 10h00.

INQUIRY ADJOURNS TO 27 MAY 2019

commission of inquiry of the public investment … · 22/05/2019 · 10 mr ian sinton: we...

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