Fund has a sound investment decision-making process that requires that
investment proposals are approved (or declined) by the Strategic Investment Committee
(“SIC”), which reports to the Board of Trustees (“the Board”).
There is proper
governance to ensure that decisions cannot be influenced by a single person and
the EPPF portfolio has no investments that have breached any of the Fund’s
policies nor the stipulations of the regulator and the Pension Fund Act.
Categorically, there is also no investment decision that has breached the
cooling-off period of the Fund.
The Fund considers a number of investment proposals in the public markets and the private markets. It assesses those opportunities based on the following criteria, amongst others:
expected risk-adjusted returns
compliance with existing investment mandates
quality and experience of the management team
compliance with Regulation 28 of the Pension Fund Act
presence of other institutional investors.
The investment in the Mpande Property Fund met all these criteria and did not breach any of the Fund’s policies. Moreover, it was approved by the SIC with the Board duly notified.
The decision to invest in Mpande Property Fund, of which Mr Luthuli, the former EPPF Chief Executive is a founder, was reached after extra steps had been taken to ensure that the approval process was robust, and the investment would be beneficial to the members of the EPPF. A stringent and comprehensive due diligence process was followed, which entailed:
Ensuring that the property valuations were conducted by a reputable independent property appraiser and were reviewed by a global property research company
Conducting thorough reference checks with all the major players in the property industry
Negotiating terms and conditions that are strongly in the favour of EPPF.
In addition to our normal rigorous processes above – and given that the internal team had worked with Mr Luthuli before – the entire investment thesis was also independently reviewed by a well-known property stockbroking and research firm. The commitment to invest was made in September 2019 and would not have been included in the 30 June 2019 annual report or annual financial statement published on the EPPF website.
The prevailing global low-return environment has compelled pension funds around the world to allocate more funds to private markets, for the prospect of earning higher returns while matching the long-term liabilities of a pension fund. Pension funds also invest in private markets to improve their financial health as measured by the funding ratio (i.e. the ratio of assets to pension liabilities). Private market investments entail Real Assets (infrastructure and direct property) and Private Equity.
The funding ratio of the EPPF (after taking all contingency reserves into account) has increased from 113% to 115% from FY2018 to FY2019. It is one of the highest funding ratios in South Africa and also ranks amongst the most well-funded pension funds in the world.