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The South African Savings and Investment Association (ASISA) says the government is unlikely to force retirement funds to invest in specific projects through prescribed assets.
Leon Campher, executive director of ASISA, said that in recent months the various partners of the National Council for Economic Development and Labor (Nedlac), namely government, labor, business and community, presented their economic recovery plans and not a single mentioned the prescription of assets. as a possible solution.
“It should be noted that even the ANC’s discussion paper on economic recovery did not mention asset prescribing as an option to consider,” Campher said.
He added that the proposals to amend Regulation 28 of the Pension Funds Act to include a separate category for retirement funds to invest in infrastructure assets do not amount to “prescription.”
The association, which represents the collective interests of the country’s asset managers, He said that he has repeatedly made it clear that his members oppose the prescription of assets, he does not believe that there is an imminent threat of this happening. “The fact that we do not believe there is an imminent threat does not amount to ignorance,” he said.
ASISA addressed some of the main concerns around prescribed assets. She noted that asset managers are not the owners of the assets that could be prescribed. Most of the assets that could be prescribed belong to the retirement fund on behalf of its members.
“It should also be noted that approximately half of these assets are in the hands of the Government Employees Pension Fund (GEPF), which is a defined benefit fund. Therefore, these assets should be carefully managed to ensure that there are sufficient funds to cover the liabilities, that is, benefits payable to public servants upon retirement, ”said the association.
All retirement funds have a board of directors (50% of the administrators are elected by the members). Retirement fund trustees are tasked with making asset allocation decisions that are in the best interest of the members, ASISA said.
The trustees, in turn, consult with asset consultants before appointing asset managers to invest in accordance with a mandate from the retirement fund. This mandate of the trustees determines the classes of assets to which a fund may be exposed, which must comply with Regulation 28 of the Pension Funds Law.
“Retirement funds have an important role to play in the development of any country through their investments. For this reason, pension funds around the world invest in real assets.
“ASISA has always argued that the problem in South Africa is not the unwillingness of the capital markets to invest, but the absence of viable infrastructure projects. Where there have been viable projects, the private sector has provided funds ”.
A good example is the Independent Power Producer Project (IPP), which attracted funds in excess of 200 billion rand from the private sector, he said.
ASISA said it has engaged extensively on the issue of prescription assets with appropriate stakeholders in government to raise awareness of the risks associated with asset prescription.
Rule 28
Rule 28 limits the extent to which retirement funds can invest in certain assets or certain classes of assets.
The main objective is to protect the retirement provision of members from the effects of poorly diversified investment portfolios.
ASISA said that since 2011, Regulation 28 has allowed retirement funds to invest up to 35% of their portfolios in unlisted assets within the following limitations:
- Up to 10% in unlisted shares;
- Up to 25% of the debt instruments that are listed on the stock exchange by a company without listed shares and 15% if the debt instrument is not listed;
- Up to 10% in private equity; Y
- Up to 2.5% in “other” assets.
Campher said ASISA believes that the above limits do not prevent further investment in infrastructure.
He said that the following considerations have been raised with the National Treasury for further discussion:
- Since investable retirement fund assets are owned by members, infrastructure projects must deliver competitive risk-adjusted returns;
- Given that provident funds by their contractual design have a need for more liquid investments, liquid and listed project bonds would facilitate investment in infrastructure;
- Infrastructure projects tend not to be listed. Direct investment in infrastructure is best suited to large defined benefit funds. However, the most important defined benefit retirement funds, namely the Government Employees Pension Fund (GEPF), the Transnet Provident and Pension Funds and the Telkom Pension Fund, are not regulated by the Funds Act. of Pensions and, therefore, are not subject to Regulation 28;
- A portfolio of viable infrastructure projects with contractually reliable sources of income must be available, which is not currently the case.
Campher said that retirement funds are not the only investors in infrastructure projects.
He said seed funding for infrastructure projects is generally provided by banks and development finance institutions (DFIs), which receive their return and exit once the project is up and running.
If the project is viable and attractive, life insurers and other investors enter by buying shares and providing additional loan capital to replace money provided by banks.
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