The Government Employees Pension Fund is planning to invest more of its R2 trillion under management outside the country and in unlisted assets to reduce risk of overexposure to locally traded companies.

The strategy was outlined by GEPF principal executive officer Abel Sithole to a commission of inquiry into allegations of wrongdoing and poor governance at the Public Investment Corporation, the fund’s biggest manager. The GEPF has more than 92% of its assets invested in companies trading on Johannesburg’s stock exchange and is a significant holder of South African government bonds and those of state-owned enterprises, he said.

“We now need to have that discussion with the finance minister,” Sithole said. The GEPF’s “significant home bias” isn’t wrong and has historically served the GEPF well, but it needs to manage risk, he said.

Moving more GEPF cash offshore could send shockwaves through South Africa’s listed companies, many of which count the PIC as its biggest shareholder. Meanwhile, increased investment in unlisted assets may help back new industries and support black entrepreneurs, he said, part of a wider initiative to redress economic imbalances caused by white-minority rule.

The PIC has been the subject of a judicial inquiry into whether the entity deviated from its mission to best safeguard pensions for more than 1.2 million South African state workers. The company has suspended staff that it says flouted governance and approval processes when making investment decisions, some of them linked to unlisted assets. In contrast, the PIC repeatedly assured the GEPF that correct governance processes were followed, Sithole said.

“The GEPF views this as a serious breach of trust,” he said. The fund isn’t “solely concerned if the PIC survives or not” as it isn’t the only asset manager around, he added.

When asked by one commissioner how much the GEPF would look to invest outside the country, the executive said private South African pension funds are able to keep as much as 30% of their assets offshore. The GEPF wouldn’t do the same immediately, but it would “probably make sense over time,” he said.

Doubling the GEPF’s unlisted investments in South Africa to 10% would help spur the economy, Sithole said. The GEPF wants the PIC to seeks approval for all investments of more than R2 billion.

© 2019 Bloomberg L.P.