A number of new changes to proposed pension fund regulation amendments, including a wider definition of infrastructure and a ban on investing in crypto assets, have been welcomed by one of SA’s leading industry players.
However, concern remains in other areas — notably the overall limits set for infrastructure investments by pension funds — which, according to Futuregrowth Asset Management could result in some retirement funds quickly hitting this cap if investments in both the listed and unlisted space are considered.
On Tuesday, the Treasury released the second draft amendments to Regulation 28 of the Pension Funds Act for public comment. The changes, first announced earlier in 2021, are aimed at making it easier for SA pension funds to invest in infrastructure.
Despite the state’s aims to help unlock private capital to boost infrastructure investment in SA’s economy, it is battling to achieve these goals in the face of long-standing policy uncertainty, energy supply constraints and, more recently, the effects of the Covid-19 pandemic.
The Treasury’s formulation of the amendments is seen as an alternative to the widely criticised policy of prescribed assets, which gathered political momentum after the ANC resolved at its last elective conference to investigate the feasibility of asset prescription.
In response to initial public consultation, the Treasury has now revised the definition of infrastructure, which takes better account of the UN Principles for Responsible Investment and inputs from Association for Savings and Investment SA.
Infrastructure is now defined as “any asset class that entails physical assets constructed for the provision of social and economic utilities or benefit for the public” and will better accommodate impact investing by retirement funds, the Treasury said. In other words investments that are made with “the intention to generate positive, measurable social and environmental impact alongside a financial return.”
Futuregrowth portfolio manager Jason Lightfoot, welcomed the change saying the expanded definition, which had been sought by the market, “recognises that the private sector has and can play a very important role in terms of infrastructure investment in SA”.
The second draft also did away with proposed sublimits to infrastructure within existing asset classes as these caused confusion, according to the Treasury, and it was “more important to deal with availability of bankable projects for retirement funds to invest in”.
The latest draft amendments, however, retained the overall exposure limit of 45% for investment in infrastructure across all domestic asset categories, and an additional 10% for investment in the rest of Africa.
“It can be argued that this is far too low, especially now that the definition of infrastructure has been broadened by such a large degree,” said Lightfoot. “The concern ... exists that some retirement funds might very quickly bump into this limit, especially if you are going to take into consideration investments across both the listed and the unlisted universe.”
It was still preferable to use existing asset class limits under Regulation 28 rather than create an overarching limit, Lightfoot said.
The proposal also included a new restriction on retirement funds’ investing in crypto assets “because they are seen to be of very high risk” said the Treasury.
The restriction is in line with the policy proposal by the Intergovernmental Fintech Working Group not to allow collective investment schemes and pension funds to have exposure to crypto assets, until further notice, it said.
Lightfoot welcomed this inclusion, saying: “Futuregrowth is of the view that crypto assets have no place in a retirement fund whatsoever, let alone as part well-reasoned investment thesis for any private investor.”
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