The National Treasury has maintained its ban on retirement funds investing in crypto assets and set a 45% limit on the portion of assets that can be allocated to infrastructure investments.
The measures are contained in the final amendments to Regulation 28 of the Pension Funds Act, published in the Government Gazette on July 1, which will come into effect in 2023 after two rounds of public comments in 2021.
Regulation 28 limits and clarifies the extent to which retirement funds can invest in particular asset classes or individual assets in an effort to protect retail investors from overexposing their capital to any one share or investment class.
“The regulations widen the scope of potential investments for retirement funds but continue to leave the final decision on any investment to the trustees of each fund, who determine the investment policy for any fund,” the Treasury said in a statement on Tuesday.
According to the amendments, retirement funds will be allowed to allocate up to 45% of their assets to infrastructure investments, though this limit excludes debt instruments or loans either issued or guaranteed by the SA government. Regulation 28 will also have a specific definition for what constitutes infrastructure.
Futuregrowth Asset Management, which oversees about R193bn, says the definition of infrastructure as per Regulation 28 is too broad and could have unintended consequences.
“Listed instruments (both equity and debt) could be considered as infrastructure — for example MTN, Vodacom, Netcare — which is especially problematic given that National Treasury has placed an overall 45% cap on infrastructure investments,” Jason Lightfoot, a portfolio manager at Futuregrowth, said in a note published on the firm’s website.
“It is therefore likely that many retirement funds will bump into these limits very quickly without the release of any guiding principles from National Treasury on what is considered infrastructure.”
Lightfoot added that Futuregrowth had highlighted its concerns through the Association for Savings and Investment SA, the body that represents the interests of the country’s asset managers and collective investment schemes.
Futuregrowth estimates that SA’s infrastructure funding shortfall over the next two decades could reach R1.8-trillion, though the nation’s pension fund industry could play a meaningful role in addressing this issue. Nevertheless, Lightfoot stressed that asset managers would need “bankable deal flow” — or projects that make financial sense — in order to commit capital to infrastructure projects.
“Ultimately, legislation can only go so far,” said Lightfoot. “The long-term success of these deals largely depends on a coherent and succinct policy within government and that also addresses how budgeted capital is spent.”
As part of the other final amendments to Regulation 28, retirement funds will also not be able to expose more than 25% of their assets to any one entity (for example, a company) across all asset classes, whether it be equities, debt, infrastructure or others. Once again, this limit will not apply to debt instruments or loans either issued or guaranteed by the government.
While retirement funds can still invest 10% of assets in hedge funds approved under the Collective Investment Schemes Control Act, there will now be a separate and higher allocation to private equity assets of 15%, versus the previous 10% limit. This is to enhance the ability of retirement funds to invest in infrastructure and economic development.
The Treasury maintained its ban on SA retirement funds investing in cryptocurrencies due to what it described as the “excessive volatility and unregulated nature” of such digital assets.
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