When David Shapiro was a lot younger, South Africa’s asset management sector were forced to invest 53% of the funds entrusted with them into “prescribed assets” – interest bearing bonds issued by the Government and its enterprises like Eskom. That law, together with strict exchange control regulations, played a huge role in keeping the wheels of the Apartheid system turning. Now a similarly beleaguered South African State is again considering forcing citizens to fund misdirected ideological objectives – with powerful forces within the ANC demanding a return of prescribed asset requirements that no longer exist in any modern state. Shapiro is horrified that the idea is even being considered and explains why in this Rational Radio interview. – Alec Hogg
I want to start off with prescribed asset requirements and the reason for that is that when Donwald Pressly wrote his piece for us in Premium last week, it created a lot of interest. Mike Schussler and Ian Cruickshank saying it’s definitely going to happen. JP Landman and Iraj Abedian saying no way that the government would make such a misstep as to introduce prescribed method requirements so they can bail out these state owned enterprises. What side of the fence are you on?
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I don’t subscribe to it. Just a point of order, the Regulation 28 was introduced in order for pension funds to subscribe to certain asset allocation. In other words in a prescribed pension fund you can’t put more than 75% in equity.Therefore you’re forced to put 25% in a combination of either bonds, cash, property or alternative funds. So to an extent there’s already prescribed requirements within the South African investment industry. You can only put 30% offshore but if you go into equities that comes out of your equity allocation or whichever allocation you want. The problem is if the balance of the 25% is made into prescribed assets.
Many years ago 53% had to go into government stock, so it could conceivably start going back now. But what’s the big deal if government forces pension funds to invest in government bonds. There will be those who say it’s part of nation building?
It is part of nation building however pension funds are there for the pensioners and therefore it’s untouchable. They shouldn’t go into government funds especially when the government at the moment hasn’t exactly covered themselves in glory, and there is a fear of what government will do with it.
I’m on the side that government should butt out. It’s an awful allocator of resources. It’s a pension or retirement fund that gets put into an area where its wastage is legend. But there’s something else that’s going on at the moment. Tamar Khan wrote an excellent piece in Business Day this morning where the state sector on medical aid are facing medical health claims through incompetence of over a R100bn. So that’s another four percentage points on VAT and now these same people want to get rid of the part of the economy that is working well, private health care, and make it all national health. Imagine the cost to the fiscus of this kind of incompetence if it was a blanket approach. Surely somewhere the bells have to go off.
I heard this someone time ago from a doctor who works for government hospitals and they wanted to get rid of her because they wanted to close down that department as there had been so many claims of negligence in that area. So the way to combat it is not to make people more efficient but just rather close down various departments. It’s huge and a reflection of the inefficiencies in government control of health.
People are dying as a result. Would you go to the Jo’burg General Hospital?
No and the problem is that they want to get rid of those doctors that are competent because of the huge amounts of claims. It’s serious and I don’t know whether these claims are ever met, whether these ever go to court, what the state of legal proceedings are and whether people are actually being fulfilled, but these are the kind of claims made against government.
Heaven help us if NHI comes in. Think of Discovery as a national asset.They have run an incredibly good business, so much so that they are going into other parts of the world. Their share price has been under pressure, down about a quarter in the past year because of the threat of national health insurance being just foisted onto the South African population. Surely if sanity prevails Discovery’s discount that we’re seeing now will disappear.
Yes it would narrow. I think health is a very important subject and I would rather leave it to the professionals. We come back to the prescribed asset argument – don’t give the money to the poor allocators of wealth. Give it to the good allocators, like Adrian Gore and people who have been running the private health. I stand to be criticised but Netcare, Life Health and Mediclinic are way above the levels in the National Health. Let them appoint people who can run it. We have created some of the best doctors in the world. Go anywhere in the world you’ll find people with South African accents who are running the areas. We’ve got a history of producing very good people.
In fact when you walk down the streets in the UK you will see dentists’ “van der” this and “van der” that. To close off with poor capital allocators. What about Phumelela? At the AGM 66% of shareholders voted against allowing the directors to issue shares for cash or to buyback shares because they are such poor capital allocators. 21% voted against the renumeration committee.
I think that there is a lot of anger. At one stage it probably had a market cap of around R2.5bn, maybe slightly more. I looked at the market cap today it’s R160m. So they’ve lost a lot of value and shareholders are expressing their anger at the way that they have lost money and that’s why they’re not allowing them to buy back shares. I think it’s more an anger vote than a common sense vote.
