GRAVY: Editorials: Edition: July / September 2019

The quick way for government to turn the national mood is merely a sample of arrests and extraditions for people against whom the evidence of corruption has been revealed. From the public inquiries, there’s already more than sufficient.

It’s unnecessary to await the inquiries’ findings and recommendations. This can take months. Trial courts make the decisions on guilt or innocence.

The urgency is that, for so long as the Zuma faction can regroup (as with the appointments by extra-parliamentary influences of chairs to parliamentary committees), the anti-corruption intents of President Ramaphosa will weaken and the confidence injection required for a debilitated economy will stall.

If the problem is a lack of capacity at the National Prosecuting Authority, then pass the hat around private-sector donors for engagement of competent counsel in private practice to assist the state officials. Such is the horror at what’s going on – or not going on – that it will probably take less than a week to fund a war chest.

It’s time for action, not words, as Ramaphosa has said.


There seems a sudden hysteria about an imminent introduction of prescribed-asset requirements for pension funds. Social media have been awash with warnings that savings will be exported to avoid it. Relax.

As TT has frequently pointed out, prescribeds have been up for investigation in ANC-speak for as long as anybody.

They’re no closer now than they were then. It’s a bit of popularist garbage more suited to the EFF.

Years ago, a leading proponent of prescribeds was trade unionist Ebrahim Patel. Now the minister of trade and industry, Patel delivered the keynote address to the recent Batseta winter conference.

Prescribeds didn’t get a mention, directly or implicitly. Neither was there even a remote suggestion that pension funds might be forced to invest in such blighted state-owned enterprises as Eskom, SAA or the SABC.

In fact, so reasoned was Patel’s call for greater attention to alternative-asset classes such as infrastructure, and his focus on good governance, that his address was met with enthusiastic applause from the pension-fund representatives who filled the auditorium.


Perhaps ‘expropriation without compensation’ has an upside.

Apparently there are many owners of holiday homes, fearing they’re the most vulnerable, looking to dump their properties. A contrarian will see never-to-be repeated buying opportunities.

A gamble worth taking? And better still with all the KZN stands released by Tongaat that, left unpaid, can be coming up for resale?


Now that there’s a new and uncorruptible head of SARS, a little reminder to explore the R50m-plus in fringe benefits that a certain taxpayer ostensibly owes on Nkandla.


Great moves at Old Mutual on interest conflicts, first with the investment division’s vote against the group’s investment policy and then with the firing by the board of group chief executive Peter Moyo. Chairman Trevor Manuel would surely have no problem with the former and himself instigated the latter, both exhibiting consistency with principle.

They set fine examples, and high time too. The levels of remuneration, from which Moyo benefited handsomely, enjoyed fillips when Mutual’s relocation to the UK put them on a par with UK levels. It was a distortion that impacted on SA’s whole financial sector, not necessarily to the benefit of clients.


The ravings of the EFF are immensely dangerous.

They’re news, sure, but undeserving of the airtime quantities generously provided by media lacking the resources otherwise to fill empty space.

Why else play into their hands?


I too used to believe in freedom of expression. But then I started listening to the phone-ins on radio talk shows. ν

UMBRELLA FUNDS: Editorials: Edition: July / September 2019

Warts and all

If the law and practice were started afresh, how should the governance of
umbrella funds look? Well, in a nutshell, different from what now exists.

At this year’s conference of the Pension Lawyers Association, that’s about all on which the panellists – Rowan Burger of Momentum Investments and lawyer Jonathan Mort – could agree. But their provocative discussion did highlight areas for ongoing debate.

Burger: We got to where we are because there’d been a proliferation of retirement funds. They had poor economies of scale and were not always well governed. The intention had to be a reduction in the number of funds, lower costs and better governance. But service providers don’t like “commoditisation”, so there’s been little innovation and tax structures inhibit further progress.

Mort: There are numerous problems with the commercial umbrellas. Amongst them, the sponsor is able to benefit at the expense of the member by the sponsor’s control of the benefit-provision process and through control of the fund. The sponsor benefits by locking in its service providers at fees not negotiated at arm’s length and by determining the investment arrangements. The relationship is between the participating employer and the sponsor, not with the fund, and the employer’s role is passive. It’s difficult for trustees to be truly independent of the sponsor.

Burger: Be careful not to add layers of governance complexity. They increase costs. Oversight is surely the role of the regulator.

Mort: There should be an oversight board, separate from the trustee board, comprising member-appointed directors and a minority of employer representatives. A trustee, whose fiduciary duties are unconstrained, cannot be a member of the oversight board. It would report to trustees on, amongst other things, the engaging of service providers. Powers would include the hire and fire of trustees, appraisal of their performance and approval of the governance budget.

Burger: Do away with management committees (comprising employers and employees). They create additional cost and governance problems because of different asset charges, benefit structures and insurance conditions. Clients can vote with their feet. There are sufficient safeguards already in the system.

Mort: Before the transfer from a standalone to an umbrella, the employer should confirm in writing to employees that it has performed a due diligence on the systems of the administrator, has reviewed the costs and is happy with their reasonableness. The employer should also report annually to members that he is happy with the fund’s governance, costs and investment arrangements.

Burger: Many employers will outsource the due diligence. To the employee-benefits consultant, the auditor or the valuator? There’s a need to drive standardisation and to make participation in the umbrella less onerous for the employer. There’s also a need to ensure portability i.e. seamless movement between funds with no penalties or lock-ins.

Mort: The sponsor should have the right to attend trustee meetings except when issues around the sponsor are being discussed. A sponsor can market a fund at the sponsor’s expense.

Burger: Many sponsors have significant commercial interests in the umbrella arrangement. When they use life licences there can be governance conflicts.

The Association for Savings & Investment SA has announced that, from October next year, people in umbrella funds will be able to assess the total impact of charges on their individual retirement benefits. This is in terms of a standard, recently approved by the ASISA board, by which member companies will have to start developing systems for implementation at the level of individuals.

Burger and Mort . . . salient arguments

FINANCIAL EDUCATION: Editorials: Edition: July / September 2019

Hard questions

Work through the high-mindedness to explain precisely the

promises and practicalities of the myriad courses on offer.

Trustee training has become a hot topic. First there’s the draft standard released by the Financial Sector Conduct Authority to prescribe the minimum skills for the board members of pension funds. Second there’s the anticipation by training providers of scorecard points under the Financial Sector Code.

The draft standard wants trustees at least to complete the FSCA’s trustee toolkit. They’ll gain certification merely for having completed it. Additionally, the draft wants trustees to undertake “further skills and training from credible providers as deemed necessary by (the fund’s) board”.

These “credible providers” would include the institutions committed to compliance with the FSC. Much money must be allocated for it and benefits are within the grasp of providers who satisfy the stipulated conditions (see elsewhere in the TT edition).

Prominent industry bodies, institutions and others have been at it for some time. During the Batseta winter conference, several were represented on a panel — Batseta itself, the ASISA Academy, Inseta and private company Six Capitals – to describe the “avenues” for retirement-fund fiduciaries to “sharpen their skills in this ever-changing industry”.

Their session was more explanatory than anything else. Description is well and good, as is the FSCA’s draft, but it opens for debate a variety of issues that beg interrogation because they run deeply and often controversially to the heart of fund governance.

It relies on trustees and aspirant trustees drawn to serve on boards. They might usefully ask:

• When the fund industry talks of “professionalisation”, for the courses being provided, what exactly is meant?

• Are different levels of professionalisation applied in training? If so, what would be the highest and lowest levels for acceptance to serve on boards?

• What advantages are there for the individual in moving from the lowest to the highest?

• Any indications of the time and effort required to attain professionalisation at the different levels? Can this reasonably be expected of people in fulltime employment?

• Is there some minimum educational requirement to embark on a course for professional qualification? What of say a shop steward who doesn’t have matric but is keen to become a trustee?

• Can members of a fund elect as a trustee a person who has no professional qualification? If so, is it a good or bad thing?

• Can’t one rely on the sponsors of umbrella funds to ensure that the trustees appointed are competent, for instance to appoint an experienced actuary who has no “professional” qualification as designated in terms of the training being offered for CPD (continuous professional development) points?

• Why should an aspirant or incumbent trustee embark on training at all? Would he or she expect higher remuneration the higher the professional qualification or otherwise be rewarded for training courses completed?

• How would the trustee and trainer know where to start e.g. with basic economics and fund administration or with drafting an IPS (investment policy statement), appointing asset managers (amongst others in the services chain) and engaging with investee companies on ESG (environmental, social and governance) matters?

• Is the FSCA draft conduct standard (published in May) likely to serve its intended purpose if people who use the toolkit be certified as having used it but not be marked for having passed it? Will use of the course qualify a person to become a trustee?

• Is this FSCA toolkit a necessary starting point or can it simply be overlooked by trustees who prefer other means of being trained e.g. by Inseta or private-sector courses?

• Who appraises the performance of trustees and who can dismiss them for poor performance? What are the carrots and sticks respectively to ensure that trustees properly serve fund members?

Answers are invited. 

UNCLAIMED BENEFITS: Editorials: Edition: July / September 2019

A higher standard

Better processes in place for uniting money with its owners.

ASISA is off to a good start.

Rather proud of its members is the Association of Savings & Investment SA. During last year, it reveals, they got R8,1bn returned to their rightful owners.

Every little bit helps, as it’s said. Relative to the many billions of unpaid assets sitting in pension funds (TT April-June), and the additional untold billions of unclaimed amounts sitting elsewhere (see box), R8,1bn is a little bit.

However, the payments do show a serious intent for monies not to remain indefinitely where they shouldn’t. More than this, R8,1bn is quite a lot relative to the estimated R17,1bn held in 147 221 products of ASISA members that still need to be paid over.

A good start has been made. The R8,1bn in “forgotten assets”, as ASISA describes them, were held in 71 233 risk (group life and disability) policies, savings and investment policies, annuity policies and accounts in the portfolios of collective investment schemes.

No breakdown of the respective categories is available. Neither is there disclosure of amounts held by pension-fund administrators who are ASISA members. The explanation is that the ASISA standard on unclaimed assets doesn’t apply to retirement-annuity policies and preservation-fund products as these are separately handled under the Pension Funds Act.

The standard, when first introduced in 2013, applied only to long-term insurance members. In

Lightbody . . . valuable progress

2016 it was extended to include the management companies of collective investment schemes and linked investment service providers. Its purpose is to encourage the use of enhanced tracing procedures so as to keep unclaimed assets at a minimum and guide ASISA members on how to treat them.

Encouraging is that, as ASISA senior policy adviser Rosemary Lightbody notes, members will honour claims on unclaimed policy benefits and investment proceeds no matter how long it takes for the policyholder, beneficiary, investor or heir to come forward. Members won’t rely on the Prescription Act where it might apply to valid claims.

She adds: “When customers reach an advanced age, for example, our members cannot assume that they’ve died. They may be alive and wanting their policies or investments to remain in place. Or, if they have passed away, their beneficiaries and heirs might be unaware that a policy or investment exists. Unclaimed assets aren’t defined by the standard as it’s expected that members will investigate the actual positions.”

The standard encourages member companies to remind customers of their entitlements on appropriate trigger events such as a policy reaching maturity date, a risk-benefit claim having been approved, communication marked as undelivered or a customer reaching age 80.

It also encourages members to be proactive; for example, by making contact with individual customers and tracing them through the various means available.

Once an ASISA member company concludes that all reasonable tracing efforts have been exhausted over a three-year period, the unclaimed assets may be used for socially-responsible investments with commercial returns. But valid claims will still be met.

For products where the investment risk is carried by the company, it may invest the assets as it considers appropriate. Where the risk is carried by the customer or beneficiary, the company must aim for investment returns in line with reasonable expectations.

These are distinct positives in a saga too neglected for too long. 


Safely assume that the total amounts in unclaimed/unpaid accounts is scary. But they will be difficult to quantify unless or until ASISA’s lead is followed by others, specifically:

• Banking Association (for bank accounts including custody accounts where dividends are held);

• Guardians’ Fund (number of beneficiaries, categories of amounts and their aggregate values);

• Department of Justice for third-party funds (such as unclaimed bail money, put at R18m in 2018);

• Compensation for Occupational Injuries & Diseases Fund (number of beneficiaries and aggregate value of benefits per category);

• Unemployment Insurance Fund (number of beneficiaries and aggregate value of their unclaimed benefits);

• Road Accident Fund (number and aggregate value of unpaid benefits);

• SA Social Security Agency (number of beneficiaries, categories of grants and aggregate value of benefits unpaid);

• SA Board of Sheriffs (unclaimed monies in their trust accounts).

That should be sufficient to get going. It all comes atop the unpaid R50bn-plus in pension funds

CYBER SECURITY: Editorials: Edition: July / September 2019



As the risks of hacking mount alarmingly, service providers to

retirement funds must take them much more seriously

than they now do.

Not a moment too soon has Sanlam executive Viresh Maharaj highlighted the real and present danger that poor resilience to cyber attacks can threaten SA’s entire retirement-fund industry.

In a presentation to the annual Sanlam benchmark symposium, he didn’t mince his words: a breach found in the systems of any one service provider would cause ripples of anxiety throughout the industry, which depends on customer trust, and it was possibly only a matter of time before a hacker breaks through.

If the industry did not address the high risks posed by cybercrime, he warned, within the next 10 years at least one SA retirement fund could lose all its investments. And yet, as the benchmark research shows, recognition of the risks is not commensurately accompanied by preparations to avoid them.

According to the benchmark research, consultants consider the evaluation of cyber risk as the least important business challenge and employee-benefits consultants rank cyber security as the lowest risk. They overwhelmingly believe that a fund’s administrator or sponsor should be held liable for losses in the event of cyber crime.

Okay, so hold them liable. But what then? How is the liability to be transacted when records have disappeared? Or when the administrator is faced with compensation claims in billions of rand? And what liability, if any, rests with advisers (where data loss can also occur) on whom employers and trustees rely in selecting their fund’s administrator?

One way to find out, of course, is the hard way. Another way is to mitigate the risks, so far as practically possible, by much higher levels of awareness. This implies, in the first and most urgent instance, that advisers insist on comparisons of administrators’ cyber proficiencies. It should open the way for competitive pressures to promote an industry-wide address of the control systems to avert worst-case scenarios including widescale identity theft.

Collective effort and far greater discipline are required to evaluate and monitor cyber resilience, Maharaj urges. He points out that only on a few occasions, across 8 000 quotes, has Sanlam been asked about it.

The research uses a 2018 Refinitiv survey to reveal the cost of financial crime. Of 2 373 global respondents (123 from SA), some 20% had experienced financial loss from cyber crime. The average cost, typically at $4bn per breach, has increased by 62% over the past five years. It most recently aggregated an annual $600bn, roughly three times the annual loss from natural disasters.

Specifically in the UK, the Financial Times reports, last year financial-services companies saw a five- fold increase in data breaches compared with the previous year. This is “seen as the latest sign of how the sector is under relentless attack from hackers”.

In 2018 the companies reported 145 breaches to the Financial Conduct Authority, up from 25 in 2017. Investment banks reported the highest number of incidents at 34, up from just three the previous year, while retail banks saw the sharpest rise in percentage terms, from one to 25 incidents.

Last April it emerged that seven UK retail banks, including Royal Bank of Scotland and Barclays, had to limit or shut down their systems. This was after sustained attacks that cost them hundreds of thousands of pounds to remedy. In October, the FCA fined Tesco Bank £16,4m as a result of a cyber attack which saw £2,26m stolen from current accounts across 34 transactions.

In Europe, the Dutch pensions supervisor is concerned that the risk of data-security incidents is increasing as pension funds insufficiently factor cybersecurity into their risk assessments. It also noted that pension funds often did not have sufficient knowledge of security measures at their outsourced service providers: “As a consequence, (pension) schemes are unable to show that they are in control or make clear that measures are effective.”

It’s scant comfort that SA isn’t alone. Forewarned, Maharaj is hoping that consultants will stimulate a “herd immunity” across the sector for better protection of fund members. 

Maharaj . . . dangerous omens

The research uses a 2018 Refinitiv survey to reveal the cost of financial crime. Of 2 373 global respondents (123 from SA), some 20% had experienced financial loss from cyber crime. The average cost, typically at $4bn per breach, has increased by 62% over the past five years.

PROFILE: Editorials: Edition: July / September 2019

Same dedication, another direction

The past few years have been tumultuous but ground-breaking

for 37-year old John Oliphant. He reflects on them.

TT: As principal executive officer of the Government Employees Pension Fund, to which you were appointed before age 30, you achieved significant impact particularly by having championed such public causes as stakeholder activism and the Code for Responsible Investing in SA. Is this a world you’ve abandoned?

Oliphant: I’m still actively involved with CRISA as its committee chairman. The main focus for CRISA has been internal, strengthening its governance structures and trying to improve its funding. My belief is that the CRISA initiative should be led by the asset owners such as pension funds. Hopefully, once this situation is reviewed, I’ll be able to step back for asset owners to take the lead. The GEPF, the largest asset owner, had helped to start CRISA. Since then, however, most signatories are asset managers.

Are you happy with CRISA’s acceptance and implementation by the retirement-fund industry? If more must be done, then by whom?

The preamble to Regulation 28 states: “Prudent investing should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character.” This consideration has laid the foundation for responsible investment within the pension-fund regulatory framework.

Because what gets measured gets done, the Financial Sector Conduct Authority should consider requiring pension funds to submit reports on their active-ownership records; for example, as complementary to their investment policy statements, on their proxy-voting policies and implementation of these policies.

Perhaps the FSCA could also develop templates for funds to report in a cost-effective way on ownership responsibilities. Most pension funds, through investment mandates or agreements, have delegated these ownership responsibilities to their asset managers. It should be for the funds appropriately to monitor and report on this delegated responsibility themselves.

Since leaving the GEPF five years ago, you’ve launched a new business. What is it and what does it do? How does it relate to your previous experience?

I started an investment holding company. Called the Thirdway Investment Group (TWIG), it is aimed at making investments in asset-management businesses. The focus is on responsible and high-impact investing. We partner with entrepreneurs who share visions and values similar to my own.

Such as what?

Having been instrumental in getting responsible-investment policies into the mainstream, and creating developmental-investment policy frameworks in SA, I wanted to build a business that allowed me to express this passion. I could not achieve my broader vision without sustainable partnerships. So far we’ve built or repositioned:

• Third Way Investment Partners, a fund-of-funds investment platform. TWIP launched its flagship infrastructure debt fund, under founding partner Fulu Makwetla, with total commitments of R2,5bn. It assists smaller pension funds cost-effectively to gain exposure to infrastructure investments that have high social and economic impacts;

• Then we created RHBophelo, launched in 2017 as a public company, with founding partner RH Managers. We seek to play a transformative role by making healthcare affordable to the majority of South Africans while generating sustainable returns for our investors. This is still a fledgling entity. I’m the non-executive chair and RH serves as management;

• All Weather Capital is an emerging asset manager. As the holding entity we had an opportunity to buy into All Weather and to reposition it in line with our philosophy of responsible investing. I’m the executive chairman and founding partner Shane Watkins is chief investment officer;

• Boxwood Property Fund, emerging and unlisted, initially focuses on high-impact redevelopments in Cape Town’s inner city. We founded the business with experienced commercial property manager Rob Kane;

• South Point provides quality, affordable accommodation for students. I chair the investment committee. We intend to create opportunities for pension funds to invest alongside us in student accommodation.

Are you the sole TWIG shareholder or are there other investors?

Through family trusts, I’m the sole shareholder. Underlying investments and boutiques are co-owned with their founding partners.

During the five years that TWIG has been operative, by what measures would you say that the business has grown? How did you identify the opportunity for it and why did you call it Third Way?

I see myself as an accidental entrepreneur. My GEPF exit was not well managed and made it difficult for me to find a job, so I was forced into the route of entrepreneurship.

My contentious exit, where I and then GEPF chairman Arthur Moloto couldn’t find middle ground, proved a major lesson in leadership. When we reflect on it today, as friends, we both recognise this. It was his way or my way, not a third way. My company’s name is a constant reminder always to consider different angles and options in making decisions.

During your protracted scrap with the GEPF, how did you mainly use your time?

I attained an MSc in finance from London University.

Can you describe your business philosophy?

It’s anchored on partnerships. My strength is mostly big-picture but I fall short on detail. The partnerships combine vision with implementation capability. It’s virtually impossible to succeed alone.

Your biggest disappointments?

One was a JSE-listed entity that I helped create but had to leave. Another was losing a founding partner to an established listed company.

You’ve been something of a role model for younger blacks wanting to climb the ladder in asset management and related fields. Some advice for them?

There are no substitutes for hard work, passion and dedication.

In a tight marketplace, is the financial sector able to offer sufficient career opportunities? Any ideas how industry ‘transformation’ might be accelerated?

We need to see more young black investment professionals. They’d be advantaged by completing studies in problem-solving type courses such as accountancy, actuarial science, maths and engineering.

Also crucial is reaching out to players in the sector for mentorships. The student chapter at the Association of Black Securities & Investment Professionals could play an increasingly important role and we must ensure its continuous success. ν

Oliphant . . . pastures new

PUBLIC PROTECTOR: Editorials: Edition: July / September 2019


It’s not over until it’s over.

For the sake of its credibility,

the FSCA simply must win the next round.

Amidst the outpourings of capture and corruption at state agencies, it would have been a relief to discover that it least one is unblemished. But now there’s a cloud of “systemic corporate-governance deficiencies” that hangs over even the Financial Services Board.

The cloud is created by the report of Public Protector Busisiwe Mkhwebane into allegations of maladministration, abuse of power and improper conduct by former FSB executive officer Dube Tshidi. So damning are her conclusions that the Financial Sector Conduct Authority has no choice than to take the report on review.

Were the report’s findings allowed to stand – they might or might not, partially or fully, depending on the review’s outcome – the damage to the credibility of the FSCA would be indelible. And this for a new body, the successor to the FSB, charged with supervision of the financial sector’s market conduct and which continues its role as regulator of retirement funds.

Here is a test for the efficacy of the Public Protector’s supervision of the FSCA’s supervision; a salutary instance of the guardian’s guardian. Tshidi is a member of the FSCA transitional management committee, set up to smooth the transition from FSB to FSCA. While the cloud hangs, and Tshidi isn’t suspended from the committee, the intended smoothness can roughen.

The report represents a storm cloud already broken by the fact of publication. Whatever happens with the review, there’ll be a time delay for the mud to stick. National Treasury, midwife to the FSCA, should think harder than the review for remedy to the reputational damage duly done.

Some proactive suggestions:

• Say good-bye to Tshidi. He’s way beyond retirement age and, for avoidance of interest conflicts, shouldn’t be near the committee that makes decisions about a report largely centred on his behaviour;

• Explain whether legal fees for the review will be paid by the FSCA (funded by levies on regulated institutions, significantly including retirement funds) or by identified parties in their personal capacities;

• Conduct an independent inquiry into the circumstances by which many millions of rand were claimed respectively from Old Mutual, Sanlam and Alexander Forbes, and how these monies were disbursed;

• Commission a forensic audit that will quantify the amounts paid to attorney Tony Mostert and his law firm, in respect of the fund curatorships for which he’d been appointed, and disclose these relative to the benefits received by the numerous funds.

The report avers that, by 2011, Mostert and his firm had earned some R240m over the previous six years. The fees earned subsequent to 2011, it’s submitted, is not known because both Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”. During the entire period up until the present, might something around R400m – give or take a few tens of millions here and there – sound too outrageous a guess?

For the FSCA, reliance on the review carries risk. In court actions, outcomes are uncertain until arguments are adjudged. And the arguments of the FSCA might well be countered in defence of the Public Protector. That the FSCA has applied for review on grounds that the report is “riddled with inaccuracies” and “did not take into account any of the submissions made”, the Public Protector has yet to respond.

In the FSCA’s favour is Mkhwebane’s shoddy record. But on the face of it, this 96-page report is in marked contrast. It’s accompanied by an extensive list of documents examined and interviews held by her. In response to the allegation by Tshidi that she had not heard evidence under oath and that hearsay remained untested by cross-examination, she insisted: “I follow an inquisitorial process in my investigations.”

Presumably, she’d been well fed by representatives of Simon Nash whose criminal trial for the stripping of pension-fund surpluses has entered its ninth year. The contention of Tshidi and Mostert that the real complainant to the Public Protector was Nash, rather than Economic Freedom Fighters leader Julius Malema, Mkhwebane dismissed as “immaterial”.

Against the FSCA is the risk of what might emerge during the review proceedings. Amongst the missiles possibly lying in wait are a report by investigator Paul O’Sullivan supported by financial statements of the A L Mostert law firm, as well as legal examinations of the Public Finance Management Act and the Inspection of Financial Institutions Act in the context of suspected collusive activities.

Key findings of Mkhwebane include:

• Improprieties and/or irregularities in the nomination of curators by Tshidi;

• A failure by Tshidi to discharge his regulatory duty “to properly manage the possible or perceived conflict of interest between Mr Mostert’s role as curator and the appointment of his own law firm to assist in the administration of pension funds placed under curatorship”;

• When written questions were posed to the Minister of Finance, the answers that Tshdi provided had caused the minister to mislead parliament.

Substantiating the broad compliant of improper conduct, the report opined: “Due to the nature of the position that (Tshidi) held, he was required to always act with the utmost integrity and in a manner which encouraged a high level of ethics and trust. As the ‘face’ of the Regulator, he was required to hold himself to a higher standard than those that he regulated.”

Under the circumstances of such a wallop, Mkhwebane has come up with remedial actions that seem surprisingly mild. Fair enough that there should be a wider pool of prospective curators from which to draw through a competitive and transparent bidding process, and that the FSCA adopts a policy to regulate the nomination process of curators.

These are hardly the bombshells requiring review. Neither is the remedial action that the FSCA commissioner – Abel Sithole, who also chaired the FSB board — takes “corrective action against the officials implicated in this report and puts in corrective measures to avoid recurrence”. The officials and measures aren’t specified.

That’s so up-in-the-air, especially with no attempt to follow the money. The excitement will be in the review process when the FSCA’s defence of its reputation is put to the test. Until then, Mkhwebane has handed a victory to Malema.

This article, by the TT editorial director, was first published by the FM on April 15.

Mkhwebane . . . for review yet again

Malema . . . victory for now

The report avers that, by 2011, Mostert and his firm had earned some R240m over the previous six years. The fees earned subsequent to 2011, it’s submitted, is not known because both Mostert and Tshidi “steadfastly refused to make any disclosure whatsoever”.

FSB/FSCA: Editorials: Edition: July / September 2019

Credibility at stake

For the accuser as much as the accused.

A fight that neither the Public Protector

nor the financial regulator

can afford to lose.

Tshidi . . . wronged?

Mostert . . . wronged?

The mission and vision statements of the Financial Sector Conduct Authority are explicit. They’re about financial-sector customers being kept “informed and protected”, and to hold accountable “those that jeopardise the financial wellbeing of consumers”. Put to the test by Public Protector Busisiwe Mkhwebane, they’re found wanting.

Encouraging for the FSCA is that the findings were made by Mkhwebane. Her limited abilities have been exposed when far-reaching determinations were thrown out by the courts.

This alone could make the FSCA confident of success in taking on review her report into maladministration and the like at the Financial Services Board, predecessor to the FSCA (see next article ‘Scathing report’, an opinion piece on which the FSCA declined a post-publication invitation to comment).

However, there is at least one Mkhwebane observation that the FSCA might be hard-pressed to refute. It’s that attorney Tony Mostert and then FSB executive officer Dube Tshidi “steadfastly refused to make any disclosure whatsoever of the amounts earned” by Mostert in the numerous funds where he’d been appointed as curator.

Also raised in Mkhwebane’s report is the Saccawu national provident fund, an umbrella arrangement of employers and largely trade-union members, now entering its seventeenth year under Mostert’s curatorship.

If the review process doesn’t manage to prise open the secrecy over Mostert’s fees, nothing will. To be sure, over many years TT tried often and hard enough (TT May-July ’18). Indeed, why there should be secrecy seems itself to be a secret.

With publication of Mkhwebane’s report, we tried again. And once again there’s no joy.

On her conclusion that Tshidi had misled then Minister of Finance Pravin Gordhan on information that the FSB had supplied to him for answering a parliamentary question, we asked the FSCA whether it wanted to correct the schedule previously published (TT Sept-Nov ’11) and further to provide the most recent schedule of fund curatorships undertaken by Mostert that also involved his law firm.

This schedule should include the name of each fund, date of Mostert’s appointment, date of appointment’s termination, recoveries to fund, fees paid by fund to Mostert and fees paid to Mostert’s law firm as well as any comments the FSCA might wish to make on them. Again, no response was received.

Also raised in Mkhwebane’s report is the Saccawu national provident fund, an umbrella arrangement of employers and largely trade-union members, now entering its seventeenth year under Mostert’s curatorship. For this fund, Mostert’s most recent report published on the FSCA website is dated 17 February 2016. It contains no mention of fees that have been charged to the fund.

Perhaps all will be revealed during the review proceedings, to be launched by end-June. There’s much more to this dispute than fees – allegations of legislative contraventions, irregularities in practices and bullying of two financial institutions amongst them – that make for fiery confrontations.

Mkhwebane must be desperate for a win. But then so too must the FSCA, Tshidi and Mostert.

An open question is whether, or when, EFF leader Julius Malema will join them in the ring. Having succeeded with his complaint to the Public Protector, it’s out of character for him to have remained silent for so long. 


Nothing less than a stinging rebuke of the Public Protector’s report was expected from Dube Tshidi. As this TT edition approached deadline, it came. So strong is his 55-page retort, in an application for review by the Pretoria High Court, that he asks for a personal costs order against Mkhwebane on the punitive attorney-client scale.

Had she performed her duties and functions reasonably and in good faith, he argues, this application would have been unnecessary and the report would never have seen the light of day: “The levy-paying institutions subject to the FSCA’s supervision and regulation, and which fund the FSCA’s operations, ought not to be saddled with the costs of the application.”

Supported by FSCA acting commissioner Abel Sithole, Tshidi argues that it was immediately apparent that the report’s conclusions and findings about his conduct are entirely unreasoned. They’d been made without any explanations as to how they’d been reached and why his responses had been rejected.

She’d failed to have proper or any regard to the extensive information that he and the FSCA had put before her. She’d also failed to give any reasoned justification for her findings. They were arbitrary as well as substantively and procedurally irrational.

“The public Protector failed to address or discuss the credibility of the various sources of information she considered, their reliability or the probabilities when faced with mutually destructive versions,” he adds. “It is therefore impossible to discern whether her findings are pursuant to deductive reasoning, inductive reasoning or any reasoning at all.”

The FSB, when previously approached directly by the Economic Freedom Fighters, it had engaged with the EFF in response to the allegations. During these engagements it emerged that the true source of the EFF’s allegations was Simon Nash, a chief participant in a criminal surplus stripping scheme related to pension funds of which Tony Mostert was the curator.

Tshidi says that when he’d met with Julius Malema and other EFF officials to address their allegations, they were accompanied by Nash. Tshidi insisted that Nash be excluded from the meeting because of pending litigation between him and the FSB.

It had been explained to the Public Protector and the EFF that the impropriety allegations by Nash against Tshidi and Mostert were “unfounded and motivated by an ulterior purpose” to obstruct his prosecution and the civil claims against him. Mostert is “actively pursuing the recovery of millions of rand of misappropriated assets” from Nash and his company.

The application by the FSCA and Tshidi is for the Public Protector’s report to be reviewed and set aside, and declared constitutionally invalid, for lack of jurisdiction. In the alternative it wants specific findings and conclusions reviewed, set aside and declared invalid, unlawful and unconstitutional.

If there is no notice of an intention to oppose the application, by the Public Protector and/or presumably the EFF, the notice of motion by the FSCA and Tshidi can be made a court order in November.

IMPACT INVESTING: Editorials: Edition: July / September 2019

Fair’s fair

Look to profit with purpose. Funds must help to prepare for

the sort of country in which they want members to retire.

With the launch of its education series for institutional investors, consultancy RisCura is performing a service for them and implicitly also for their clients in the formulation of mandates. The first in the series of seminars posed the question of whether investing for a better SA required prescription.

Certainly not. Were government to prescribe where retirement funds had to invest portions of their assets, there’s no saying where they might end up; for example, pouring into the black holes of badly-governed state enterprises at disastrous returns. By contrast, impact investment (II) is what it says it is; a deliberate means whereby investors act to improve the society in which they operate and earn at least market-competitive returns.

The one is not an alternative for the other, much as the seminar theme suggested that II could stave off the threat of prescription. They’re different animals.

Opening the seminar, DNA Economics head Elias Masilela put it this way: “Applied correctly, II has the potential to make a significant contribution to important outcomes and improve human conditions. The application framework required a strategy, origination and structuring, portfolio management, an exit and ultimately independent verification.”

Growing economic imbalances were a hotbed for instability that threatened future profits, he warned, and called for a “swift and innovative” response.

It’s only the speed that needs acceleration, for II isn’t exactly innovative. Around the world, it’s recognised and applied to good effects including financial. In SA too.

RisCura managing director Malcolm Fair cited local initiatives: Futuregrowth’s Infrastructure & Development Fund for top-quartile bond performance while developing infrastructure; Ashburton’s Jobs Fund for enhanced cash returns while creating jobs, and Mergence’s Infrastructure & Development Equity Fund for rolling outperformance (see graph).

Such issues as climate change, labour relations and executive remuneration carried investment risks that had to be managed, Fair argued.

Around the world, II has become the hot area for money managers looking to burnish their ethical credentials. The Financial Times reports: “The allocation of funds to projects that put societal and environmental outcomes on a par with financial returns has become one of the fastest-growing parts of the asset-management industry.”

But it’s not without problems. In a survey, institutional investors and consultants said that their top biggest challenge was finding unlisted companies that fulfil the idea of an appropriate mission and provide a suitable place to park funds. While large institutions could allocate capital to publicly-listed companies, it then became harder for them to show a direct link between money spent on buying these shares and any positive impact on the business.

Of course, one way is for the investors to hold the companies’ boards accountable for their social and environmental actions. An incentive is to get on with it is that, as a mountain of research is beginning to show, the younger generation of clients demands that their investments show positive impacts which alter the practice of capitalism from greed to good.

For making investment decisions, profit and purpose are one and the same. Enough then of slow adherence to the United Nations’ 17 social development goals which set an inclusive growth agenda for the years until 2030. Businesses and financial institutions such as retirement funds are seen to have a major role for the achievement of these goals, in SA as elsewhere.

SA funds might be paying members far into the future, Fair pointed out. Some of today’s younger members will be receiving payments in 2085 and even those close to retirement will still be receiving pensions in 2050.

Think of the environment into which they’ll retire if the goals aren’t achieved. Or better, think of it if they are.

COVER STORY: Editorials: Edition: July / September 2019

Unsocial scenarios

There are warnings after warnings of a ‘ticking time bomb’. The ticking is heard

but inadequately heeded. Throwing money at the problem won’t resolve it.

The sustainability of Eskom is marked as the greatest risk to the SA economy. But there’s another risk, perhaps equally great. In circumstances of pitiful economic growth, it’s the perpetuation on its present trajectory of the social-grants system that shields swarths of the population from starvation.

Retirement funds are obliged by regulation to consider environmental, social and governance (ESG) criteria in making investment decisions. Of the three, the S gets the least attention. This isn’t as it should be because it can rock investments the most.

Latest figures from Stats SA put unemployment amongst black youths at 34,2% in the 25-34 age group and 55,2% in the 15-24 age group. To describe this situation as explosive is to state the obvious. When people have no incomes they must rely on those who do, however meagre, or take to the streets.

Riots and robberies, dangerously prevalent, won’t be thwarted by improved policing alone. Neither can they be mitigated by the maximum hand-outs that the state can afford. For the present, social grants are a kind of palliative that keeps the poorer in relative calm and the richer in relative comfort.

The latter daren’t gripe because, in a way, they’re paying an insurance. In the current fiscal year, government allocated R175bn in social grants for 17,6m people. Against this, there are 7,6m individual taxpayers from whom R553bn is extracted.

So a hefty chunk of individual taxpayers’ contributions are absorbed by social grants. In a national budget that’s highly redistributive, of the 7,6m individual taxpayers there are a mere 121 000 (1,6%) who pay R160bn (30%) of the total. The equivalent of their entire payments, and then some, go to social grants.

Despite redistribution, which in itself is unarguable, the social-grant system has failed to generate upliftment from destitution. The new mandate of the Social Development Department is “to provide social-protection services and lead government efforts to forge partnerships through which vulnerable individuals, groups and communities become capable and self-reliant participants in their own development”.

Were it to happen, it will be a reversal from what’s been happening. Bring on the “partnerships”, presumably with the private sector, and pray for success.

When the dispensation of cash lacks a multiplier, it is limited to serving consumption. The vital means of support for grant beneficiaries, it extends to support for dependents in the swollen ranks of the jobless. Poverty grinds on.

The point is made in the National Development Plan which aimed to eliminate poverty and unemployment by 2030: “Children, the aged and people with disabilities are the groups most likely to be unemployed and bear the brunt of poverty and inequality. Their dependence on family networks is precarious given the extent of unemployment and underemployment.

“High unemployment rates mean grant recipients have to use their grants to support other household members as grants are often the main source of income in poor households.”

Released in 2012, the NDP was produced by a panel on which Cyril Ramaphosa served as deputy chair. In his inaugural address as SA president, Ramaphosa emphasised his determination to reverse the trait of too much talk and too little action. The NDP will need to be dusted off, inclusive of its concerns with social protection.

Thin as the grants are – people older than 60 get R1 780 a month, for example — they hit disconnects. One is that the number of beneficiaries increases faster than tax revenues. Another is that joblessness proceeds in the wrong direction, compounding the number of dependents.

The inadequacy of social grants, relative to need, is accentuated if each of the 17,6m recipients is conservatively assumed each to have an average of two dependents. This implies that the greater proportion of SA’s population relies on the grants, capped at around 3,2% of gdp.

National Treasury projects that there’ll be 18,6m recipients within the next two years. As gdp declines – it slumped in the first quarter of this year, causing growth forecasts for 2019 to halve from the already-distressed 1,5% — there must either be less money available for social grants or the state will need to prune from other essential expenditures. The plight of Eskom, for one, gives it little leeway.

For a further perspective, go back at little. In a 2004 judgment, the Constitutional Court ruled that there were circumstances which entitled non-citizens to social-security benefits. This was despite the arguments of National Treasury that the extension to permanent residents was unaffordable.

Treasury had pointed out that, in the previous three years, expenditure on social grants (excluding administration costs) had increased from R16,1bn to R26,2bn. It was contemplated that over the next three years the amounts would increase from R26,2bn to R44,6bn.

That was long ago. The figures are miniscule when compared with the subsequent ballooning. Back then, the court had considered that the inclusion of permanent residents would have minimal impact because of an effective immigration policy which sought “to exclude persons who may become a burden on the state and thereby to encourage self-sufficiency among foreign nationals”.

Did it? There aren’t analyses to say. But it would be a red herring anyway. Joblessness in SA is joblessness in SA, a matter of scale irrespective of nationality.

The overarching evidence is that the numbers keep going up with few interventions to make much difference. This is despite the plethora of green papers, white papers, academic research and recommendations into what should be done. Thankfully, long-serving Social Development Minister Bathabile Dlamini has been relegated for uselessness.

She’s had no more severe critic than Sipho Shezi. Her fulltime special advisor from 2013, she fired him in 2017 for his objections to her defiance of a Constitutional Court decision over irregularities in the department’s contract with Cash Paymaster Services.

Shezi, a retired director-general of Public Works – he was the youngest DG when appointed by Nelson Mandela – is a steadfast critic of the system that’s evolved. Quite fundamentally, he warns, the system “is unsustainable in the manner being executed”.

When he headed Public Works under minister Jeff Radebe, he recalls, its programmes were meant to have money flowing into delivery of services while simultaneously to develop skills and jobs. These intents, formulated as policy in 1997, must be revived.

But in the years that have passed, under Social Development the system has garnered the sense of a right to receive something for nothing in exchange. Perhaps it’s a legacy from the 1980s’ mobilisation against the old regime carried into an anticipation for the new.

This culture, which accommodates zero return on government’s investment, has to be turned around. “As the social grants come in, most of it goes out for the purchase of perishables manufactured and distributed by large JSE-listed groups,” he points out.

Not that Shezi has anything against Tiger Brands and Shoprite, amongst others, but he’d far rather see the grant money circulating optimally in the communities themselves; for example, “where local people grow vegetables that they sell to local stores which in turn supply local customers and such public institutions as schools”.

At the policy level, there has to be a welfare net. But at the same time, he urges, it must provide for a transition: “When people are in the net this component of civil society has to be consciously mobilised with capacity to look after itself.”

He wants an exit strategy from social grants. The more that people are “capacitated” to produce their own incomes, the more they can become taxpayers who contribute to the revenue base. The welfare net is there for those don’t make it, or until they do.

It cannot be said that the present system is sustainable when active citizenry is virtually zero, Shezi suggests, and children are coming from collapsed family structures.

To be sure, there are myriad proposals for reform. The committee of inquiry into a comprehensive social-security system was established by the Social Security Department in 2001. It concluded: “The urgent need to address deepening social exclusion and alienation of those households living in destitution cannot be ignored.” Some urgency.

In 2016 there was the updated iteration, under UCT professor Viviene Taylor, for “transforming the present, protecting the future”. Like the NDP, it’s been gathering dust.

And proposals for a National Social Security Fund remain in the wings, almost is if its central feature of “social solidarity’’ is too contentious to confront. The term is a diplomatic way of phrasing the subsidisation of people not in retirement funds by those who are, with concomitant effects on fund benefits that otherwise contradict efforts to improve them.

But structural reform should be subordinated to the larger reform of diminishing dependence on hand-outs, not to be consumed as an end in itself but as a stimulant for economic activity. This will require a radical change in culture, which serves an aspiration for self-reliance, much more difficult to achieve.

Unless there’s a new leadership committed to achieving it. To be hoped is that the new mandate of Social Development, articulated in a bill being developed for parliamentary approval, will represent the start. 

Heavy burdens

Dlamini . . . failure

Shezi . . . culture shift