Reading the voluminous Public Investment Corporation (PIC) integrated report, I cannot help but think that “the plague rats of the language virus” – which is how Don Watson describes consultants in Death Sentence: The Decay of Public Language (Alfred A Knopf, 2003) – have crept in.

The PIC has now embarked on growing its “client base and investment offerings through innovative thinking”, aims to be a “catalyst of continental economic integration”, and will be investing in people and creating “brand ambassadors”.

The PIC, through its strategic partnerships, has been able to “crowd-in” capital. Perhaps it can provide an explanation as to what this is. I am sure they are not referring to crowdfunding.

The PIC is one of the few state-owned entities that met the deadline to publish its results. But is it growing its asset base? There is little information provided on investments, and none on earnings per investment. This is quite concerning, as the Government Employees Pension Fund (GEPF) is growing its base of future pension fund beneficiaries. The pensioners could be forgiven for being nervous about whether their defined benefit fund will stay true to its intent. The government guarantee, relied on by far too many for comfort, may yet turn into an oxymoron.

The GEPF makes up 87.12% of the funds that the PIC manages. Other clients include the Unemployment Insurance Fund (UIF), the Compensation Commissioner Fund (CC), the Compensation Commissioner Pension Fund (CP) and the Associated Institutions Pension Fund (AIPF). The PIC’s role is to invest in funds on behalf of its clients, based on the investment mandates set by each client and approved by the Financial Sector Conduct Authority (FSCA).

During the year, a total of R3.25 billion was approved for investing in private equity and structured investment products (SIPs), R9.5 billion for impact investments and over R5.8 billion for unlisted properties.

Notable transactions concluded during the 2017/18 financial year include:

R400 million invested in RH Bophelo Ltd

R2 billion invested in African Rainbow Capital Investments Ltd

A strategic investment in Vodacom Tanzania worth R1.1 billion

US$350 million invested in Dangote Cement Plc.

Income statement

Revenue for the year is up 10.03% to R1.2 billion (2017: R1.1 billion). Investment income is also up 13.7% to R182.7 million (2017: R160.6 million).

However, the bad news is that profit for the year of R411.3 million is 22.8% down from 2017 (R533.1 million), and cash generated from operations of R416 million is down 30.2% from 2017 (R596.4 million). Total cash at the end of the year is at R299.8 million, down 25.6% from 2017 (R403.2 million).

Impairment losses, in regard to the equity and preference share investment in Bophelo Insurance Group (BIG), amounted to R82.3 million. The PIC wrote off its investment in BIG, which is an insurance group owned 70% by Mvunonala Holdings (Pty) Ltd and 30% by the PIC. BIG incurred a large loss on an investment in VBS Bank.

Despite the downturn in the economy, the PIC spent a total of R47 million on new furniture (R12 million), R11.4 million on IT equipment, and R22 million on leasehold improvements. This resulted in an overall increase in property, plant and equipment of 88.3%.

Balance sheet

The PIC provides no breakdown of its investments in listed shares and bonds. It is not possible to ascertain which good investments have been sold, nor whether the investments are sound. The PIC will only apply the International Financial Reporting Standard (IFRS) 9 from 2019, and this may have a significant impact on its impairment provisions.

It has recognised a deferred tax asset that mainly comprises the future economic benefit on short-term and long-term incentive provisions. No explanation is given as to what these incentives are. However, this is quite a significant number as a percentage of operating profit.

Calculated at the tax rate

2018 2017 2016 2015 2014 R000 R000 R000 R000 R000 Leave pay 4 756 3 223 2 413 3 115 2 393 Short-term incentive provision 39 497 44 815 36 225 34 140 29 210 Long-term incentive provision 48 344 47 052 48 614 45 200 Other provisions -4 678 3 374 2 569 1 036 32 552 Deferred tax asset 87 919 98 464 89 821 83 491 64 155 % deferred tax asset/operating profit 22.7% 19.3% 19.9% 21.6% 26.5%

In terms of assets under management, the PIC has R2.7 trillion (2017: R2.4 trillion), making it one of the largest asset managers on the African continent.

Worryingly, the PIC is juggling a few competing objectives: maintaining a healthy capital base to produce returns exceeding the cost of capital, and investing for sustainable growth, inclusivity and transformation. These objectives do not necessarily deliver a return, and can result in losses.

The PIC’s massive capital base will remain earmarked as a perpetual piggy bank, and the nervous GEPF pensioners will be watching this base stretching across a growing list of funding projects, until the foundations crack.