Concern about slow transformation at Futuregrowth Asset Management, which this week pulled the plug on new loans to state-owned enterprises, led Eskom's pension fund to withhold further investment from the fund manager, CEO Sbu Luthuli said this week.The Eskom Pension and Provident Fund, which manages more than R130-billion for Eskom staff and pensioners, declined to invest R100-million in Futuregrowth's Development Equity Fund III, which invests in infrastructure and renewable energy, in the fourth quarter of last year.The pension fund has an exposure of about R340-million to various funds managed by Futuregrowth, including Development Equity Fund I. It also felt that it was paying high fees for this fund, considering its performance, among other factors.Luthuli said that while Futuregrowth had a level 2 broad-based BEE rating, the EPPF was concerned that no black Africans held senior leadership positions.story_article_left1It had suggested the promotion of a black woman on the team with the required experience and skill to the position of deputy chief investment officer."We have invested with Futuregrowth for nearly 10 years, and we have these conversations [about transformation] year in and year out," said EPPF acting chief investment officer Ndabe Mkhize.But Futuregrowth had dismissed their concerns, Mkhize said.Futuregrowth chief investment officer Andrew Canter declined to comment. He said this week that Futuregrowth would not grant R1.8-billion in new loans to state-owned enterprises due to concern about governance.The six entities about which Futuregrowth has particular concern include Eskom, Transnet and the South African National Roads Agency Limited.Yields on Eskom's rand-denominated bonds maturing in 2027 spiked on the news, as did the yield on South Africa's 10-year government bond, indicating that investors were pricing in a higher risk. But on Friday, the yields were trading at levels below where they were before the announcement.Canter said Futuregrowth, managing R150-billion in domestic fixed- interest assets, had held positive dialogue with most of the entities, but would not extend any new loans or buy additional SOE bonds.Denmark's Jyske Bank told Bloomberg that it had "gone underweight in Eskom bonds" since Wednesday, and expected that other lenders could follow suit.Ted Blom, an independent energy analyst, said that because credit committees did not sit daily there had not been a wave of reaction from other international asset managers. He said some committees would just decline to participate on future loans.Eskom CEO Brian Molefe described Futuregrowth's move as "grandstanding of note". He suggested there was no reason for Futuregrowth not to buy Eskom bonds as they traded at a premium to Treasury bonds (commanded a higher yield) and were government guaranteed.But Canter said Futuregrowth was assessing the sustainability of these businesses on a stand-alone basis and did not believe it suitable to extend loans to them just because they had government guarantees.story_article_right2Futuregrowth's R11-billion Infrastructure and Development Bond Fund, which includes exposure to SOEs, has consistently outperformed the All Bond index and its peers over the past 16 years.Canter said this was not a vote of no confidence in the government's ability to repay its debts. "We are very substantial holders of government debt."Funding to SOEs had tightened in recent years, said Canter. "For the SOEs' listed bonds, credit spreads have been widening over the last few years relative to other borrowers."The credit spread refers to the difference in yield between a government bond and an SOE bond, where a bigger difference indicates a higher yield and the perception of greater risk.Eskom said Futuregrowth's announcement did not put its funding plan at risk. Molefe said Eskom held a roadshow two weeks ago when most asset managers, including Futuregrowth, did not raise concern about governance, and there was appetite for Eskom's inflation-linked bonds."We have called the entire industry, and they say that guy is on his own," he said.Luthuli said the EPPF was not consulted about Futuregrowth's decisions involving the power utility. "We would've expected them to have shared their concerns with us as investors and solicited our views."..