The Treasury listens to industry on Regulation 28


The National Treasury appears to have paid close attention to comments from the pension industry following the publication of the first draft of the proposed amendments to Regulation 28 of the Pension Funds Act. This section of the law tells institutional investors where they are allowed to invest pension funds in order to manage some risk.

Most of the concerns and changes requested by the retirement fund industry were addressed in the second draft, which was released Tuesday for another round of comment.

When the government first declared that it intended to review the provisions of Regulation 28 and mentioned that these changes would include provisions relating to investment in public infrastructure projects – such as the water supply, electricity and road networks – members and pension fund managers feared that investments in these assets were on the horizon.


Prescribed Assets “Won’t Work” – Industry
Prescribed assets not necessarily a train wreck

However, the proposals were greeted with gratitude – and relief – as the upcoming changes will do little more than clarify existing asset classes and update limits on how much a fund manager can. invest in each class.

The proposals actually give fund managers more freedom in choosing investments, not less.


SA proposes changes to Regulation 28
Amendments to By-law 28 are broader than restrictive

Broader definition

The Treasury notes that the first draft was published in February, with 39 submissions received through the public consultation process. “Most submissions welcomed the proposed amendment to the regulations,” he said.

It is clear from the comments that one of the main concerns of the first draft was that the definition of “public infrastructure” was somewhat vague and appeared to allow investment in government infrastructure projects only.

“Several comments pointed to gaps in the definition of ‘infrastructure’,” according to the Treasury.

“This definition limited infrastructure to facilities, structures, facilities, systems, services or processes relating to matters specified in Schedule 1 of the Infrastructure Development Act.

“Another limit [was] that infrastructure must be part of the national infrastructure plan, which excludes private sector infrastructure and infrastructure in the rest of Africa or abroad. The definition of infrastructure has been revised in the second draft regulation 28.

“The new revised definition is that infrastructure is” any class of assets that involves physical assets built for the provision of public and economic services or for the benefit of the public “,” he says – referring specifically to the contribution received of the Association for Savings and Investment South Africa (Asia).

In addition, according to the Treasury, including the social aspect in the definition will accommodate impact investing by pension funds.

Impact investments are described as investments made with the intention of generating a positive and measurable social and environmental impact as well as a financial return.

Andrew Davison, Head of Consulting at Old Mutual Corporate Consultants, says changing the definition of infrastructure was very important because the first definition was very restrictive.

“The broader definition includes many more infrastructure projects, especially those initiated and built by the private sector,” Davison explains. “This will increase the number of projects the funds can consider investing.”

However, he adds that the provisions applicable to the amount that pension funds can invest in infrastructure on a “transparent” basis is still a concern.

Read: ‘Examining Through’ Isn’t a Problem on Currency Control – Wierzycka

“Additional administrator” issues

Comments from the majority of pension industry stakeholders are not so much about a fund’s maximum exposure limit to infrastructure, but rather about the additional administration to ensure that the funds meet the standards. limits on a transparent basis.

The Treasury noted in its summary of comments received that some investors said the 45% limit in all categories was too high and others said it was too low, indicating they were probably right.

The problem is actually the extra work, as fund managers, administrators and auditors have to add up all the elements of direct and indirect investments (through different investment funds that may be exposed to the infrastructure). ) to make sure they don’t violate this limit and invest too much in infrastructure.

When asked if this onerous requirement would scare investors away, Davison replied, “How far scare? There are no places to go. Industry has funds and [is] willing to invest in good bankable projects.

He adds that the current pension fund law allows infrastructure investment and the current changes are a welcome effort to clarify matters and facilitate infrastructure investment.

Lack of opportunity

Comments on the first draft of the proposed amendments include several complaints lamenting the lack of “bankable” projects capable of providing pension fund members with decent returns.

The Treasury replies that its role is to build the right legal framework and that the planning and construction of projects are not its responsibility.

“The government has to push for the right projects,” Davison says, adding that no compromise on returns on investment will be tolerated because SA already has a problem with people not having enough money to retire.

Mike Adsetts, deputy director of investments at Momentum Investments, says it’s good for private and public projects to qualify as there is a trust deficit in government (which needs to be addressed).

“The inclusion of private projects will increase the investment universe and there will be, arguably, better standards of governance in private projects,” Adsetts said.

“There is a real need for infrastructure investments, creating solid business cases and real return potential. Not all projects are created equal, so as investors we need to be very careful about which projects we support and invest in.

He says that “the great thing about infrastructure investments is that they are tangible and can really change and improve people’s lives.”

“Investments in infrastructure have great potential to integrate responsible investment practices. ”

Adsetts adds that infrastructure investments are inherently long-term and cash-generating, which matches the longer-term duration of pension funds, at least in theory.

“One of the risks is that infrastructure investments are illiquid and our experience is that pension funds tend to have a shorter duration than you would expect,” he says.

This is due to terminations, downsizing and the ability of fund members to move from one fund to another.

Hedge funds

One area where the Treasury apparently did not listen to the industry in the first round of public participation is the industry’s investments in hedge funds.

The first draft actually seemed to restrict the ability of pension funds to invest in hedge funds as the new definition only allows investment in hedge funds that are structured as collective investment schemes.

“The Treasury must review the definition, or we will be forced to sell some of our investments in hedge funds,” commented a fund manager.

And finally, cryptocurrencies will still not be allowed as a pension fund investment.

Leave A Reply

Your email address will not be published.