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The National Treasury has published a draft of changes to the pension fund law, the public can have an opinion until March 29, 2021.
- The public will have until March 29 to comment on the proposed changes to Regulation 28 of the Pension Fund Law.
- The changes are aimed at making it easier for retirement funds to invest in infrastructure asset classes.
- Adjusting legislation is only one part of encouraging investment in infrastructure, says one industry expert.
The public can now comment on the proposed amendments to regulation 28 of the Pension Funds Law, which are intended to make it easier for retirement funds to invest in infrastructure.
On Friday, the Treasury released the draft amendments, following the announcement by Finance Minister Tito Mboweni earlier this week during the presentation of the national budget.
Regulation 28 provides guidance to pension funds and similar institutions on their investments.
“Regulation 28, issued in terms of section 36 (1) (bB) of the Pension Funds Act, reduces excessive risk and concentration for member savings and ensures protection by limiting the extent to which Retirement funds can invest in a particular asset or particular asset classes, “the Treasury said in a statement.
He explained that the proposed changes follow a series of calls to increase investment in infrastructure, given the climate of low economic growth.
The deputy director general for fiscal policy and the financial sector, Ismail Momoniat, told Parliament’s permanent and select finance and appropriations committees that the proposals do not oblige pension funds to invest in infrastructure assets. In the past, concerns have been expressed that the amendment to Regulation 28 is a form of asset prescription, which was implemented during the apartheid era to boost development when the country faced economic sanctions.
The government has repeatedly ensured in past amendments that they would not amount to an asset prescription.
The Treasury reiterated this in its statement by stating that the decision to invest in any asset class, including infrastructure, is a decision that must be made by the board of directors of the retirement funds.
The main proposed changes are:
Defining infrastructure as a specific asset class or category: Currently, the infrastructure is spread across a number of asset classes such as stocks, bonds, loans and private equity, the Treasury said. “Consequently, current data from retirement funds does not record exact investment in infrastructure. Therefore, the proposed amendment introduces a more precise definition of infrastructure to allow much better data and measurements,” Treasury said.
Specific limits were introduced for asset classes: Originally, alternative asset classes had a blanket cap of 15% covering hedge funds, private equity, and “any other assets not included in this list.” Specific limits are now placed on each asset class and the collective limit is removed. The 10% private capital limit is proposed to be increased to 15% with the split. The “Hedge funds and other assets not contemplated in this table” would maintain their respective limits of 10% and 2.5%.
The Treasury is seeking public comment on the above definition and the changes to the asset classes, as well as the proposed percentage limits. Comments will be received until March 29, 2021.
Prabashini Moodley, Managing Director of Old Mutual Corporate, noted that allowing more investment in infrastructure assets, specifically, can allow for greater investment. But legislation does not necessarily limit investment in infrastructure.
“It’s also quite specialized – pension fund trustees must use an investment advisor who understands the asset class,” he explained.
Another aspect is that infrastructure projects are long-term and are often a large capital investment.
“Imagine building a hospital or massive road networks; it is important that the construction of such projects is correct,” he explained. In South Africa there have not been enough of these projects and they have not reached markets quickly enough, he added.
“The regulation review is a part that will allow it (investment in infrastructure assets),” he said. These projects must also be well thought out in terms of construction and administration, he emphasized.
Boost economic growth
Moodley noted that the timing of the proposed amendments, which coincides with the government’s plans to stimulate economic revival through infrastructure development, is good. “We have a country that desperately needs infrastructure improvements and, at the same time, our economy needs some kind of catalyst.”
Infrastructure projects in some cases also contribute to the welfare of society, for example, when schools and hospitals are built.
“I think the timing is good, the challenge is the pace and having the right skill to work on these projects.”
For investors, the amendments could possibly allow for portfolio diversification, which is also a good thing, he added.
