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Proposed amendments to Regulation 28 show long-awaited political savvy

At the end of February 2021, the National Treasury published the draft amendments to Regulation 28 of the Pension Funds Act for public comment. This follows the 2021 Budget and 2020 Medium Term Budget Policy Statement announcements that government is in the process of reviewing Regulation 28 to make it easier for retirement funds to invest in infrastructure.

Regulation 28, issued in terms of section 36(1)(bB) of the Pension Funds Act, reduces excessive and concentration risk to member savings and ensures protection by limiting the extent to which retirement funds may invest in a particular asset or in particular asset classes.

The proposed review to Regulation 28 is informed by a number of calls for increased investment in infrastructure, given the current low economic growth climate. The current regulation does not define ‘infrastructure’ as a specific category, which is currently spread across a number of asset classes like equity, bonds, loans and private equity. Consequently, current data from retirement funds does not record the exact investment in infrastructure. The proposed amendment therefore introduces a more precise definition of infrastructure to enable much better data and measurement.

“There were quite a number of requests for increases in the level of investment by retirement funds in the infrastructure space. One of the requests was for prescribed assets. So, we decided to amend the legislation,” Basil Maseko, National Treasury director of savings, told Citywire South Africa in an interview. “It is not that retirements funds do not invest in infrastructure. They do. But the infrastructure part of the investment is not visible to us when the pension funds report. We want to be able to identify how much is spent on infrastructure.”

Furthermore, the asset class “hedge funds, private equity and any other assets not listed in this schedule” has been split into “hedge funds”, “private equity” and “any other assets not listed in this schedule” as stand-alone asset classes. This will allow for specific limits to each of these asset classes.

As a result, comments are requested on the above definition and changes to asset classes, as well as the percentage limits proposed for these asset classes.

Investing in infrastructure – industry experts react

“Investors and members of retirement funds need not panic that this is going to result in irresponsible investments being made,” according to Malusi Ndlovu, director of large enterprises at Old Mutual mentions in a Moneyweb podcast interview.

Ndlovu explains that there are two ways that one can think about infrastructure from an investment perspective – either it’s a different asset class on its own, or it’s a theme within different asset classes. “The way that Treasury has chosen to look at it is the latter, where within equity it’s possible to invest in infrastructure and have an ownership stake in an infrastructure asset; and within bonds it’s possible to invest in infrastructure and basically issue debt towards infrastructure assets and so on – and similarly across all the different asset classes. So, what they are proposing is that you have limits within each of the regulated asset classes, with an overall cap of 35% among domestic assets, and another 10% for African-based investments.”

“I don’t think it’s such a bad development,” Independent advisor Magnus Heystek comments in Biznews. “I think if it’s done responsibly and correctly, it will provide a much needed boost for South Africa’s infrastructure – which has been neglected for a very long time. The issue is how will investors make money and that is the crux of the matter.”

Leon Campher, CEO of the Association for Savings and Investment SA (Asisa) told Moneyweb that “pension funds actually like investing in infrastructure”. “But not everything,” he adds. “The industry wants bankable projects with long-term income streams.” Campher points out that pension fund investment in infrastructure is not that popular in SA, for several specific reasons, one being that there are not many decent projects available to invest in.

However, he notes that infrastructure projects are viable as they create economic activity, mentioning that private funders would probably be willing to invest in energy, renewable energy, energy security, desalination, the digital economy, student accommodation, water and sanitation and roads.

Ndlovu agrees:  “Most South African retirement fund members plan to retire in South Africa. Their fund’s investment in infrastructure would generate financial returns as well as social returns in the form of stimulating economic activity, increasing the resilience and sustainability of their own communities.” Tanya van Lill, chief executive of the South African Venture Capital Association (Savca), seconded this point. “For example, a retirement fund in the clothing industry could invest in infrastructure to directly benefit the area where employees live, improving roads and building schools,” she says.

According to Mike Adsetts, deputy chief investments officer of Momentum Investments, the way the amendments have been drafted shows that input from industry has been considered and gives insight into how government believes that infrastructure investment opportunities will present themselves. “The legislation is drafted in an enabling rather than prescriptive form, with the infrastructure investments themselves being accommodated within the existing investment types, aligned with industry views,” says Adsetts.

After a lot of “Wolf Wolf” cries in the media about threatening asset management prescription, this approach by government is really refreshing and hopefully paves the way for better outcomes following consultation, rather than tunnel vision approaches which inevitably leads to (unwelcome) unintended consequences.

Comments on the draft notice will be accepted until 29 March 2021. Comments can be sent to Basil Maseko at

Click here to download the Draft Regulation 28.

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