DA Probes Billions Lost in Pic's Failed Isibaya Investments

The Democratic Alliance (DA) has initiated a parliamentary probe into billions of Rands allegedly lost by the Public Investment Corporation (PIC) through reckless investments within its "Isibaya Fund." These investments, intended for government pensions and public purposes, have in some instances lost all their value, raising significant concerns about governance and accountability. The probe seeks to uncover the rationale behind these failed deals, identify beneficiaries, and hold responsible parties accountable, building on previous findings of the Mpati Commission which exposed deep-seated governance failures within Africa's largest asset manager. This development underscores the ongoing challenges in safeguarding public sector retirement savings and the critical need for robust oversight.

The Public Investment Corporation (PIC), Africa's largest asset manager, is once again under intense scrutiny following an announcement by the Democratic Alliance (DA) to probe billions of Rands allegedly lost through its "Isibaya Fund" investments. This parliamentary inquiry comes amidst mounting concerns over the PIC's investment decisions, particularly those within its unlisted portfolio, which manages funds primarily on behalf of the Government Employees Pension Fund (GEPF). The DA's move highlights a persistent pattern of alleged mismanagement and a lack of accountability that threatens the retirement savings of millions of South African public servants, including teachers, nurses, and police officers.

The core of the DA's investigation focuses on the "Isibaya Fund," a portfolio designed not only for financial returns but also for developmental and social impact. However, reports indicate that numerous investments within this fund have performed dismally, with some losing their entire value. A prominent example cited is the Daybreak chicken farm investment, which reportedly saw an approximate R2 billion PIC investment dwindle to a fraction of its original worth. This article will delve into the legal and governance implications of these alleged losses, examining the statutory framework, relevant case law, and the broader context of accountability within state-owned entities in South Africa.

The Public Investment Corporation (PIC) is a state-owned entity established in 1911, and corporatised in 2005 under the Public Investment Corporation Act, 2004. It is wholly owned by the South African government, represented by the Minister of Finance, and serves as an asset manager for various public sector entities, with the Government Employees Pension Fund (GEPF) being its largest client, accounting for approximately 88.2% of its assets. The PIC currently manages assets exceeding R3 trillion, making it the largest asset manager on the African continent.

The PIC's operations are governed by a robust legal framework, including the Public Investment Corporation Act, 2004, the Public Finance Management Act (PFMA), 1999, and the Financial Advisory and Intermediary Services (FAIS) Act, 2002. The PFMA, in particular, sets standards for expenditure, accounting, and reporting for public entities, ensuring financial management efficiency and effectiveness. The Isibaya Fund, established in 1999, is a key component of the PIC's investment strategy, specifically mandated to invest in projects across Africa that generate financial returns while also promoting developmental and social objectives, such as private equity, large-scale infrastructure, black economic empowerment, and job creation.

Concerns over the PIC's governance and investment practices are not new. The Judicial Commission of Inquiry into Allegations of Impropriety Regarding the Public Investment Corporation (Mpati Commission), appointed in 2018, investigated allegations of corruption, maladministration, and governance failures. Its 2020 report exposed widespread disregard for PIC policies and processes, significant governance failures, and impropriety in numerous investment decisions, highlighting issues such as political capture, conflicts of interest, and weak accountability, particularly within the unlisted investment portfolio.

The Democratic Alliance's current probe into the PIC's Isibaya Fund investments directly addresses the persistent issues identified by the Mpati Commission. The DA has submitted detailed parliamentary questions to the Minister of Finance, seeking critical information on the investment rationale, due diligence processes, the identity of executives and board members who approved these deals, declared conflicts of interest, and the beneficiaries of these investments. This line of inquiry aims to uncover whether the PIC's investment decisions were made prudently and in the best interests of its clients, particularly the GEPF, as mandated by the FAIS Act and client agreements.

Evidence of significant losses within the Isibaya Fund is alarming. Beyond the R2 billion Daybreak chicken farm investment, which is now reportedly worth a fraction of its original value, the updated schedule of Isibaya's unlisted investments reveals a portfolio with both winners and substantial failures. Disturbingly, some investments have yielded a -100% internal rate of return (IRR), effectively becoming zeros, with no proceeds or residual value. Examples include Amalooloo, Berlin Beef, Concor, Educor, and Independent Media, collectively representing billions in lost capital. The overall internal rate of return for the Isibaya portfolio since March 2006 has been reported at a mere 4.25%, a figure that, when compared to an average South African inflation rate of approximately 5.3% over the same period, indicates a real loss in value for public servants' savings.

These financial losses point to potential breaches of fiduciary duties by those entrusted with managing the PIC's assets. Directors and executives of the PIC, as a state-owned company, owe fiduciary duties to the corporation, which are codified in the Companies Act, 2008, and supplemented by common law principles. These duties include acting in good faith, for a proper purpose, and in the best interests of the company, as well as exercising reasonable care, skill, and diligence. The Mpati Commission's findings of widespread disregard for PIC policies, ineffective governance, and the failure of senior management to manage decision-making professionally and honestly, suggest a systemic failure to uphold these duties.

The slow and inconsistent implementation of the Mpati Commission's recommendations further exacerbates the situation. Despite calls for strengthening board independence, establishing transparent investment criteria, and referring implicated individuals for disciplinary or criminal action, allegations of ongoing financial irregularities and political interference persist. The lack of transparency surrounding the Isibaya Fund, with the PIC often providing evasive or incomplete answers to parliamentary questions, continues to be a major point of contention. This ongoing lack of accountability undermines public trust and jeopardizes the financial security of millions of pension fund members.

The Democratic Alliance's renewed probe into the Public Investment Corporation's Isibaya Fund investments is a critical step towards addressing the long-standing issues of governance, transparency, and accountability within this vital institution. The PIC's mandate to safeguard and grow the retirement savings of public servants, while also contributing to national development, demands the highest standards of fiduciary responsibility and ethical conduct. The reported billions in losses and the alarmingly low returns on certain Isibaya Fund investments underscore the urgent need for decisive action to protect these crucial public funds.

For legal practitioners, this development signals increased scrutiny on the governance practices of state-owned entities and the potential for heightened legal action against individuals found to have breached their fiduciary duties. Attorneys advising public entities and their boards must emphasize rigorous adherence to statutory obligations, internal policies, and the principles of sound financial management, particularly concerning due diligence, conflict of interest management, and transparent reporting. Moving forward, all stakeholders will be watching closely for the outcomes of the DA's probe, the efficacy of any further reforms to the PIC Act, and the tangible steps taken to recover lost funds and ensure that those responsible for mismanagement are held accountable, thereby restoring confidence in the integrity of South Africa's public investment landscape.