PUBLIC INVESTMENT CORPORATIONestablished by

Public Investment Corporation Act of 2004

Presentation to Standing Committee of Finance

2

Discussion pointsDiscussion items

1. The PIC act

2. The PIC Mandate and strategic Objectives

3. The PIC Clients and Asset Under Management

4. How PIC Invests. AUM and SA GDP contribution

5. NDP Investment Focus in the Listed Portfolio6. NDP Investment Focus in the Unlisted Portfolio

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Public Investment Corporation Act

NAME Public Investment Corporation (PIC)

Legislation Public Investment Corporation Act of 2004

Clients Public Bodies: Pension Funds, Trust Funds, Short-term Insurance etc. 

GovernancePIC – the Board of Directors with its various committees, the managers and other stakeholders. This is a huge improvement given the history of the institution which was run by a board of three Commissioners from 1911 to 1984 and subsequently the Board was assisted by the Executive Committee.

Regulator Financial Services Board (FSP 19777)

Staff PIC Employees. PIC strives to pay average market related remuneration to attract and retain best talent.

Mandate

To manage a range of segregated mandates from Government and other public institutions. Asset Classes: Fixed Income, Equities. Domestic and Nondomestic assets.

• Expansion of Isibaya mandate ( Unlisted Investments) to 5% of GEPF’s AuM.

Management Fees Average of 3bps for Listed Investments and below market related fees for Unlisted Investments

The PIC is an Asset Manager for all official Sector Funds. Its activities differs from a DFIs such as IDC and DBSA

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Mandate:

The PIC mandate is to invest official public sector funds, including pension funds. The investment

mandates are set by clients and the PIC objective is implement the investment mandates.

Vision

To meet or exceed our clients' investment objectives and commitments to stakeholders

Mission

The PIC – having been established by an Act of Parliament to provide for the investment by the

Corporation of certain monies received or held by, for or on behalf of the Government of the

Republic and certain bodies, councils, fund and accounts – will:

Deliver investment returns in line with client mandates

Create a working environment that will ensure that the best skills are attracted and retained

Be a beacon of good corporate governance

Contribute positively to South Africa’s development

The PIC Mandate and Key strategic objectives

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PIC Top 5 Clients and Assets Under Management

Name of ClientAsset under Management (31 March 2013)

(“R Billion”)

Asset under Management (31 March 2014)

(“R Billion”)

Client Holdings

%

Government Employee Pension Fund (GEPF)

1,252 1,432.7 89.2%

Unemployment Insurance Fund (UIF)

81 93.7 5.8%

Compensation Commission Pension Fund (CC)

15 15.3 1.0%

Compensation Commission Fund (CC)

21 26.3 1.6%

Associated Institution Pension Fund (AIPF)

14 13.9 0.9%

Others 31 24 1.5%

Total 1 ,404 1,606 100%

UIF and CC has extended their asset allocation to include Socially Responsible Investments (SRI). These investments will target investments with huge social and developmental impact such as job creation, social infrastructure and SMMEs.

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PIC Asset Classes – Where we invest in

PIC Investments Asset Classes

OFFSHORE INVESTMENTS (NON DOMESTIC)

LISTED INVESTMENTS (DOMESTIC)

UNLISTED INVESTMENTS (DOMESTIC)

Listed Equities (In-house managed)

Listed Equities (Externally managed)

Bonds

Cash & Money Market

Private Equity

Developmental Investments

Properties

Dinamane

Global Equities

Global Bonds

Africa – Listed Investments

Africa – Unlisted Investments

Aprox 20%Aprox 70% Aprox 10%

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Evolution of the PIC Strategic Asset Allocation

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Strategy Investment Approaches

Alpha Strategies

Listed Equities (domestic) – Out sourced to external Managers. Developmental Manager Program

Global Equities (Non Domestic) – diversified across various regions/geographies, asset classes. Managed through third Party Managers

Africa Listed Portfolio (Internally Managed) – Building of the concentrated diversified portfolio which presents key African economy fundamentals

Africa Listed Portfolio – externally managed by third- party managers

Beta Strategies

Listed Equities (Domestic) – Core quantitatively managed, with tactical tilts over a period of time

Listed Equities (Offshore) – core managed, with allocation calls managed in house

Fixed Income core Strategies

Properties strategies (Yields)

Unlisted Investment Strategies

Unlisted DI (investment approaches through direct, co-investments and Indirect (Fund of Funds)

Unlisted – Private Equity ((investment approaches through direct, co-investments and Indirect (Fund of Funds)

Unlisted Debt – ( mainly direct investments and co-investments)

Properties Investments strategies

Property Investments ( Unlisted Investments) – Co Investments, Indirectly held, Directly held, Joint ventures, Asset and Portfolio management

Properties Management ( leasing, Facilities management, properties operations)

Broad Investment strategies

PIC Investment activities and alignment to

Economic Growth initiatives

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Assets under Management Growth

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AuM Growth versus SA GDP since 1995

Economic Growth drives Asset Growth? And the reverse is trueRule of Thumb: )____(

:?___

*5

:__

assetscatalyticeconomicinInvestmentfGDP

GDPdriveAuMCan

GDPGrowth

ThumbofRule

AuM

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SA GDP and PIC AuM since 2004

Year GDP (current prices R m) AuM (R m) AuM/GDP

2004 1 415 273 377 340 26.7%

2005 1 571 082 445 077 28.3%

2006 1 767 422 584 539. 33.1%

2007 2 016 185 706 639 35.0%

2008 2 256 485 775 366 34.4%

2009 2 406 401 730 334 30.3%

2010 2 659 366 907 025 34.1%

2011 2 917 539 1 029 643 35.3%

2012 3 155 195 1 169 447 37.1%

Average 32.7%

PIC has a significant influence in the economy

Asset Base more than 1/3rd of SA GDP PIC can make a difference by investing prudently in the economy

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The Virtuous Cycle of Economic growth & Assets Growth

Economic Growth

Asset Growth/Returns

Growth in AuM

Investment in Catalysts for

Economic Growth

Developmental Investments

Developmental Investments

Prudent Asset Allocation

There is positive corre

lation

between our investm

ent

returns and the perfo

rmance

of the economy

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Active Investment Approach to stimulate Economic Growth

Traditional Approach ( Last 20 years) The New Approach ( Now and going Forward)

• Passive investment strategy • Active Investment approach through Developmental investments and alignment with key government economic priorities

• Benchmark driven approach, very low focus on being active in sectors that stimulate growth

• Developmental Investment focus within Benchmark parameters. Economic stimulus.

• Unlisted Investment approach was mainly focused on large narrow based BEE funding.

• Moderate to average social impact focus

• Unlisted Developmental Investment Policy well defined and broaden to cater all aspects of development ( Allocation 5%), strong focus on Job creation

• Active Listed DI approach

• Lower risk portfolio, on average over +/- 15% CARG over 20 years

• Alignment with government policies to exploit investment opportunities created by government, eg NGP, NDP policies

• Expected targeted portfolio returns >15%• High social impact

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SA GDP composition detail by ranking(Top 5)

GDP = G + C + I + Ex - Im

1

General government

services (18.4%, ZAR191bn)

 Food, beverages &

tobacco (26%, ZAR498bn))

 Manufacturing (18%,

ZAR105bn) 

PGM's (14.4%, ZAR102bn)

 Crude oil (15.8%,

ZAR131.5bn)

2Education (17.9%,

ZAR186bn) 

Transport (16%, ZAR307bn)

 Community, social &

personal services (17%, ZAR102bn)

 Gold (9.9%, ZAR71bn)

 

Motor vehicle parts &

accessories (7.7%, ZAR64.2bn)

3Social protection

(12.9%, ZAR131bn)

 Utilities (16%, ZAR300bn)

 Transport, Storage &

communications (15%, ZAR91bn)

 Iron ore (8.6%,

ZAR61.5bn) 

Radio, tv & communications (7.2%, ZAR60bn)

4Health (10.5%,

ZAR110bn) 

Miscellaneous goods & services (11%,

ZAR220bn) 

Finance, insurance & real estate (15%,

ZAR90bn) 

Coal (8.1%, ZAR57.4bn)

 Motor vehicles

(7.1%, ZAR59bn)

5Public order and safety (10.2%,

ZAR106bn) 

Health (10%, ZAR182bn)

 Mining & quarrying (13%, ZAR75bn)

 Motor vehicles

(7.5%, ZAR54bn) 

Petroleum products (6.0%,

ZAR50bn)

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Targeted Sectors to stimulate GDP growth ‘The Smart Approach to Investing”

Targeted Sectors PIC Approaches Partners

Government SOEs and DFIs Private

Oil and Gas Sectors Targets investing companies both locally and internationally with significance influence in the sectors

Department of Energy, Department of Minerals, PPPs

PetroSA, DBSA, IDC Sasol, JSE Listed Oil and Gas companies

Manufacturing and Beneficiation (industrials)

Target established companies for expansion in manufacturing of motor vehicles, processing and assembling, mineral beneficiation and domestic supply of inputs. Greenfields projects in manufacturing

Department of Trade and Industry, Department of Minerals,

PetroSA, DBSA, IDC

Financial Service sector

Targeting collaboration with Banks insurance companies to co invest in developmental investments, and expansion capital for companies that needs to grow

National Treasury FSB, SARBS, DBSA, IDC, AFDB, IFC, AFDB, “ the BRICS Bank”

JSE Listed Banks, ( both top % and lower Tier banks)

Economic Infrastructure Sectors (power, construction, water, ICT)

POWER generation (Build and list Power utility companies, IPPs in Gas, Coal, Nuclear “Clean Technology in the Long Term”

Department of Transport, Department telecommunication and ICT Department of Higher Energy, Department Water affairs

ESKOM, SANRAL, TELKOM, DBSA, IDC, AFDB, IPPS, PPPs

JSE Listed energy companies , Unlisted companies in downstream energy, Telecom, ICT and water sectors

Social Infrastructure (Health, Education & Affordable Housing)

Investments into education (Built Operate and Transfer +-20years) in partnership with the government. Investment in hospitals, PPPs, affordable housing to middle income households

Department of Human Settlement, Department of health, Department of Higher Education, Department of Basic Education.

DBSA, IDC, AFDB; Health care and Pharmaceuticals companies eg Adcock, Aspen

Real Estate Provide best and quality offices for all the Government departments and other public official sector entities

Department of Public works; National Treasury, Municipalities Various departments

DBSA, IDC, AFDB; Various both listed and unlisted property companies and funds

SMMEs Investments into SMMEs, support to SMEs financing intermediaries

Department of SMEs, Department of Trade, Municipalities

NEF,DBSA, IDC, Various SMME finance intuitions, eg Business Partners, WDB, etc.

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Where Developmental

Investment portfolio will sit

Where Developmental

Investment portfolio will sit

Charity, grants, Government

transfers

Investor expects only principal

returned

Development finance

institutionsFor no financial

return

For financial

return

Developmental

Investment

N/AMost investments

occur here (including the

main part of the PIC portfolio)

For social, economic or environmental impact

Not for social, economic or environmental impact

Developmental Investment Approach

Proof of the pudding is in the eating….

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Developmental Investing for Economic Transformation (DIET)

DIRECT= “Developmental Investing for a Radical Economic Transformation”

Developmental Investments Private Equity Properties

Economic Infrastracture

Social Infrastructure

Priority Sector

InvestmentsDinamane

Environmental &

Sustainability

South African Private Equity

AfricaPrivateEquity

South Africa

Properties

AfricaProperties

Sector Focus:RoadsRailTransport & LogisticsEnergyPorts (air, sea, rail)Water, ICT, Mining

Sector Focus:Affordable HousingHealthEducationSocial ameninties

Sector Focus:

AgricultureAgro- processingManufacturing beneficiationTourism

Sector Focus:

SMEs across all sectors

Sector Focus:

Renewable energyClean technologyGreen buildingsSustainable environments

Sector Focus:

Across all sectors with a focus on tranformation.

Sector Focus:

Consumer driven sectors, other sectors will be viewed oppotunistic

Sector Focus:

RetailIndustrialOffices

Sector Focus:

RetailIndustrialOffices

Unlisted Investments

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The GEPF DI, NGP and NDP (the Link)

National Development Plan:

Sets long term vision for overall economic andocidevelopment in South Africa.

Integrates economic, social, demographics, environmental and governance elements into a coherent framework

Developmental Investments

Its all about investing for the greater good of the economy, and ensuring

sustainable long term socio – economic development

to South Africa and the rest of the continent

New Growth PathEconomic strategy designed to shift South Africa's development trajectory over the medium term, aiming to set the economy onto faster , more sustainable inclusive and production -led growth part

Growth and employment goals achievable through the following drivers of job creation:

Infrastructure Main economic sectors (

Manufacturing, mining, and agriculture)

Green economy Investing in social capital and

public services Spatial development African Economic integration

15ys + - Developmental Policy 2020

National Development Plan

Sets long term vision for overall economic and social development in South Africa.

Integrates economic ,social, demographics, environmental and governance elements into a coherent framework

Outlines proposals to adress the triple challenge of reducing inequality, unemployment and poverty

2030

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NGP/NDP Alignment to PIC Developmental Investments

NDP Chapter Objectives & ActionsHow PIC respond to the

NDP Initiatives PIC Key Achievements ECONOMY AND EMPLOYMENT: Focus on sectors and clusters that have high potential for growth stimulation

1. Decrease unemployment through investment in Agriculture and Agro-processing. (Increase youth and rural employment)

2. Mineral Cluster :Improve growth and income distribution

3. Manufacturing: promote localisation and diversification

4. Finance Sector: Partnerships to provide project finance

5. Broaden ownership of assets to historically disadvantaged groups.

• Priority Sector Pillar: Currently R3 Billion Committed. Since inception R967 million was invested in Agriculture, Agro processing industries, Mining Beneficiation and tourism sectors.

• Private Equity: R 5 Billion committed through the current mandate. Since Inception R22,8 billion was invested in financial services and transformation across various sectors

• Dinamane: R1. 5 Billion committed through the current mandate across all sectors with a focus on SMMEs.. Since inception R697 million was invested across all sectors with a focus on SMMEs – High job creation impact

Since inception in excess of 53 270 jobs have been created. Some of the key contributors (2014/14FY) are:  Through the construction of the renewable energy, currently the labour force is sitting at 24 183 of which 13 303 are from the local communities Dinamane has created an excess of 10 000 jobs through the SMMEs funding and supportPriority sector has created a total of 4 107 jobs (permanent and seasonal) in the agricultural sector. Majority of the seasonal workers were employed for a period of over 6 months. The investee companies managed to employ 144 youth. In 2013/14 financial year over 309 SMEs were created and financed and 21 467 loans were distributed to the small scale entrepreneurs in rural communities Over 10 communities and Employee trust have been formed and financed as a way of broadening assets ownership by the historical disadvantaged groupsIn addition The PIC provides enabling opportunities for BBBEE partners to participate in the broader economic market through a loan agreement that will afford them equity of an investee company and/or by taking an equity stake of certain investee companies with a plan to exit to a BBBEE parties in the near future

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NGP/NDP Alignment to PIC Developmental Investments

NDP Chapter Objectives & ActionsHow PIC responds to the NDP

Initiatives PIC Key Achievements

ECONOMIC INFRASTRUCTURE

1. Increase electricity capacity and access, including investing in renewables.

2. Increase access to clean water.3. Improve public transport, ports

and rail.4. Competitively priced and widely

available broadband.5. Optimise coal, shale gas and

fuel resources.

Economic Infrastructure: R5 billion committed through current investment. Since inception R3.8 billion was invested in Transport & Logistics, ports, Rail, Telecoms, water, ICT & Broadband, Energy, Resources infrastructure and , shale gas sectors

PIC investment to Lanseria and Road Concession which is N3 Toll Concession, Track and South African Toll Roads Company-Bakwena Platinum

Infrastructure Bonds support through Fixed Income department

ENVIRONMENTAL SUSTAINABILITY AND RESILIENCE

1. Protect ocean resources.2. Decrease greenhouse gas

emissions.3. Reduce volume of waste4. Better agricultural technologies

and agro-processing.

• Environmental Infrastructure: R5 Billion committed through current investment. Since inception R8,6 billion was invested in renewable energy, shale gas, green economy, recycling focus.

Direct investment to nine (9) renewable energy projects in South Africa of which one is currently operating (soutpan).

Invested in the construction of 318 MW of solar energy in Limpopo and Northern Cape and development of a fuel bio-ethanol plant in the Free state

INCLUSIVE RURAL ECONOMY

1. Improve infrastructure and service delivery in rural economies.

2. High agricultural potential land3. Improving small scale and

commercial agriculture and link to the markets

• Social Infrastructure ( R5 Billion Committed) – Social Housing improving living standards and priority sectors

Building of 100 bed Private hospital in Shoshanguve, Lakes hospital in Mpumalanga.

Just Veggies investment that is building the capacity of rural farmers through the Community Trust model. The company is incubating the communities that has benefited from the Land Reform programme and have no capacity or skills for farming.

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NDP Chapter Objectives & ActionsHow PIC responds to the NDP

Initiatives

SOUTH AFRICA IN THE REGION AND THE WORLD

1. Boost intra-regional trade and implement a regional integration strategy

2. Build partnerships across the African continent.

• MoUs signed with various African strategic Partners ( AFDB, EBID, PTA, IDC, DBSA)

• Smart State strategy• Rest of Africa Private Equity: R5, 2 billion)

committed through the current mandate. Since inception, R2,6 billion was invest in financial services and transformation across various sectors

• Africa Development Investment (DI): US$500 (R5, 2 billion) committed through current investment. Since inception R2 billion was invested in Energy, transport and logistics, social infrastructure and other related sector, water and information communication technology

• Strategic investments across all regions which capture the African themes

• Signed MoUs with strategic partners such as AFDB

• Fostering economic integration in African continent through investments into infrastructure, telecommunication and Energy

TRANSFORMING HUMAN SETTLEMENTS

1. Better spatial planning2. Upgrade all informal

settlements.

• Social Infrastructure ( R5 Billion Commitment) – Affordable housing, Education and Health care

Investment that provides affordable housing to date over 70 000 housing units have been developed.

An investment into home loan financial service company with a target on affordable housing loans to government employees and middle to lower income households (Gap Housing)

NGP/NDP Alignment to PIC Developmental Investments

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NDP Chapter Objectives & ActionsHow PIC responds to the

NDP Initiatives

IMPROVING EDUCATION, TRAINING AND INNOVATION

1. Improve the quality of education

2. Focus on early childhood development.

3. Eradicate school infrastructure backlog

4. Expand higher education system.

5. Further vocational training (non-

• Social Infrastructure ( R5 Billion Commitment) – Affordable housing, Education and Health care

19 200 learners have received quality education through an investment with School and Education Investment Fund

HEALTH CARE FOR ALL

1. Improve life expectancy2. Improve primary healthcare3. Prevent and reduce the disease burden 4. Implement National Health Insurance5. Build human resources in the health sector

• Social Infrastructure ( R5 Billion Commitment) – Affordable housing, Education and Health care

Construction of three Private Hospitals of which two might open during the 2014/15 financial year. In rural areas and secondary towns.

SOCIAL PROTECTION

1. All children should enjoy access to nutrition, health care, education, social care and safety.

2. Create opportunities for the unemployed.3. Address the skills deficit in the social welfare

sector.4. Mandate retirement savings for all workers,

and maintain the government social assistance net

• Social Infrastructure ( R5 Billion Commitment) – Affordable housing, Education and Health care

Education and training support providing training in the social welfare sector

NGP/NDP Alignment to PIC Developmental Investments

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How we deliver...?

Systems and Technology

Robust Risk management And

strong Governance controlsPeople

Human talent PIC has over 100 investment

Professionals

Over 250 support staff and properties management team

3 offices

Over .. Systems, Online real time portfolio management,

Research data base, reporting tools, strong back

up systemsStrong internal Risk and

compliance management team, internal Audit team. Strong

aligned and efficiency governance committees.

Strong Policies

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Conclusion

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We believe that we have a bigger and important role to play in the economy through our

investment activities

Our developmental investment strategies are well aligned to government key priorities

and most importantly policy of regional integration with the rest of the continent

The goal remains to be the best modern asset manager of choice for all official sector

entities both in South Africa and Globally.

Investing for the good cause to the livelihoods of all South Africans and rest of Africans

remains our key priorities, while at the same time delivering sustainable long term returns

to our clients

Conclusion