Changes to Regulation 28 of the South Africa Pension Fund Act, and especially the increase in the proportion of a retirement fund that asset managers can invest offshore, have been discussed since 2019, when National Treasury first mentioned that it was time to update regulations. These changes to legislation were gazetted this week.
The SA Treasury reiterated that the specific subsections of the regulation, commonly referred to as Reg 28, aims to protect retirement fund members by imposing limits on investments in a particular asset or in particular asset classes to prevent excessive concentration risk.
Although Reg 28 enforced diversification, asset managers have complained that certain of the limits restricted prudent fund management principles, in particular the previous requirement that a retirement fund can invest a maximum of 30% of its assets offshore, as well as another 10% in African countries.
Offshore requirement
The offshore requirement is one of the most significant changes of Reg 28.
In addition, pension funds will be allowed to increase their investments in infrastructure projects as the new regulations recognise infrastructure as a separate asset class.
Limits for the percentage a fund may invest in private equity funds and hedge funds have also been increased.
“The regulations widen the scope of potential investments for retirement funds, but continues to leave the final decision on any investment to the trustees of each fund, who determine the investment policy for any fund,” says National Treasury in a short explanatory note to the gazetted changes.
Implementation
The effect of increasing the limit for offshore investment from 30% to 45% has led to speculation that billions worth of investment funds can leave SA. However, the most recent Alexforbes Manager Watch survey of retirement funds found that most investment managers were already on or very close to the previous offshore allocation of 30%, while some have actually increased their exposure to domestic equities, as local companies were seen to offer better value than international shares.
Of the 36 managers, only 8 were lower than the limit of 30% by more than 5%.
“Nedgroup [Balanced] was the lowest at 18.9% followed by ClucasGray on 19.3%. Oasis had the highest exposure to international assets at 38.5%, which we infer includes some exposure to Africa equities,” says Alexforbes.
It noted that while most managers kept their domestic asset allocation relatively stable, some increased their allocation to domestic equities over their positions in December 2020.-Moneyweb
