JSE flight: PIC looks to more unlisted assets

The Public Investment Corporation (PIC) is circumventing the negative impact that the wave of JSE delistings has had on its books by increasing its investment in unlisted companies, chief investment officer Kabelo Rikhotso says.

More than 20 companies were delisted in 2022 for reasons that included mergers & acquisitions, especially among small and medium caps.

Departures included Mediclinic, Distell, Massmart, PSG Group and Clover.

“For us, given the size of the books that we manage we have tried to mitigate those risks to ensure that we give ourselves options to hold some of the delisted shares on our unlisted portfolio,” Rikhotso said.

“However, you still need to bring IPOs [initial public offerings] in the market and we are engaging the JSE because they need to do something to relax the regulations and improve the environment.

“If you look at the pressure in the market for listed entities, the small- and midcaps are not covered by your large brokers.

“You go into company results [presentations] and there is barely no-one, such as small asset managers, who look at the shares,” he said.

CONCERNS

The JSE, which has almost halved in size over the past two decades, recently announced that it will rework the listing requirements for domestic and international companies as the local bourse looks to arrest the decline of listed companies.

The number of delistings, however, remains a concern for the PIC, which manages R2.599-trillion in assets.

At the year end to March 21, 36.71% of its assets under management were in listed equities managed in-house, 9.75% in listed equities externally managed, 32.65% in bonds, 4.85% in cash and markets, and 1.57% in listed property.

Though the state-owned asset manager says it will continue to invest in JSE-listed companies, Rikhotso says the increase in delistings poses a threat for asset managers that trade in traditional stocks because their choice of where to invest has drastically shrunk.

“It’s something that we are engaging in with the JSE to see what we can do.

“However, PIC has an opportunity to invest in the unlisted side,” Rikhotso said during a presentation of the PIC’s annual report on Tuesday.

DISTELL

“There has been a transaction [where] there was a delisting and ... we decided not to sell our shares but to hold”, he said, referring to Distell’s delisting in April.

“Where we see the opportunity to hold the company in the unlisted side we will do so.”

Of the PIC’s unlisted investments, 0.56% of assets under management were in private equity, 1.7% in impact investing and another 2.1% in unlisted investments.

Of its offshore investments, 6.54% was in global listed equities, 1.46% in global listed bonds, 1.5% in African listed investments and 0.59% in African

unlisted investments.

The PIC’s unlisted division, housed in the R99bn Isibaya Fund, invested more than R11.5bn in the domestic economy in 2022/23 in sectors such as renewable energy, financial services, agriculture, housing and manufacturing.

The PIC invests funds on behalf of the Government Employees Pension Fund (GEPF) and the Unemployment Insurance Fund, among others. The GEPF portfolio, which makes up 88.61% of total assets under management, grew 1.1% to R2.3-trillion for the period under review.

The UIF portfolio, comprising 5.14% of total assets under management, grew 13% to R135bn and the Compensation Commissioner, accounting for 2.09% of total assets under management, increased by 4.3% to R54.4bn.

“Its focus is on delivering positive, risk-adjusted returns and sustainable growth to client

RIKHOTSO SAYS THE INCREASE IN DELISTINGS POSES A THREAT FOR ASSET MANAGERS THAT TRADE IN TRADITIONAL STOCKS

mandates. Listed equities, our major asset class, again delivered positive returns for clients, growing by 7.9% over the 12 months and outperforming benchmark returns by 1%,” PIC CEO Abel Sithole said.

Amendments to the asset allocation limits of local pension funds, which came into effect in 2022, have not affected the PIC or the GEPF because they are not subject to the Pensions Fund Act, he said.

Before the amendment, the offshore asset limit was 35%, with a further 10% allocation to the rest of Africa. The changes to regulation 28 mean the 10% allocation that was ring-fenced for the rest of Africa — an allowance that was seldom fully used — has been rolled into the general offshore allocation, which now stands at 45%.

“For the PIC that has not resulted in any significant outflows, which could have been something that our peers in the asset management industry would have experienced as clients were taking advantage of the significantly increased allocation that can be invested offshore,” Sithole said.