- The public will have until 29 March to weigh in on proposed changes to Regulation 28 of the Pension Funds Act.
- The changes aim to make it easier for retirement funds to invest in infrastructure asset classes.
- Adjusting legislation is just one paart of encouraging investment in infrastructure, says an industry expert.
The public can now weigh in on proposed amendments to regulation 28 of the Pension Funds Act,which are aimed at making it easier for retirement funds to invest in infrastructure.
Treasury on Friday gazetted the draft amendments – following Finance Minister Tito Mboweni's announcement earlier this week during the tabling of the national budget.
Regulation 28 provides guidance to pension funds and similar institutions on their investments.
"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," Treasury said in a statement.
It explained that the proposed changes follows a number of calls to increase investment in infrastructure – given the low economic growth climate.
Deputy director general of tax and financial sector policy Ismail Momoniat told Parliament's standing and select committees on finance and appropriations that the proposals do not force pension funds to invest in infrastructure assets. In the past, concerns have been raised that amending Regulation 28 is a form of asset prescription - which was implemented during the apartheid era to drive development when the country faced economic sanctions.
Government has repeatedly assured in the past amendments would not amount to asset prescription.
Treasury reiterated this in its statement by indicating the decision to invest in any asset class – including infrastructure - is a decision to be taken by the board of trustees of retirement funds.
The main changes proposed are:
Defining infrastructure as a specific category or asset class: Currently infrastructure is spread across a number of asset classes like equity, bonds, loans and private equity, Treasury said. "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," Treasury said.
Specific limits to asset classes introduced: Originally alternative asset classes had a 15% overall limit which covered hedge funds, private equity, and "any other asset not listed to in this schedule". Now specific limits are placed on each asset class and the collective limit is removed. Private equity's limit of 10% is proposed to increase to 15% with the split. "Hedge funds and other assets not referred to in this schedule" would keep their respective limits of 10% and 2.5%.
Treasury is seeking public comment on the above definition and changes to asset classes, as well as percentage limits proposed. Comments will be received up until 29 March 2021.
Prabashini Moodley, managing director of Old Mutual Corporate, noted that allowing more investment in infrastructure assets – specifically – may enable more investment. But legislation is not necessarily limiting investment in infrastructure.
"It is also quite specialised - trustees of pension funds need to use an investment adviser who understands the asset class," she explained.
Another aspect is that infrastructure projects are long term – and are usually a large capital investment.
"Imagine building a hospital or massive road networks – it is important to get construction of such projects right," she explained. In South Africa there have not been enough of these projects and they have not come into markets fast enough, she added.
"The regulation review is one part that will enable it (investment in infrastructure assets)," she said. These project also need to be well thought through in terms of construction and management, she emphasised.
Boost economic growth
Moodley noted that the timing of the proposed amendments which coincides with government's plans to spur economic revival through infrastructure development is good. "We have a country that desperately needs infra upgrades and at same time our economy needs some sort of catalyst."
Infrastructure projects in some cases also contribute to the wellbeing of society for example when schools and hospitals are built.
"I think the timing is good the challenge is the pace, and having the right skill in working on these projects."
For investors, the amendments could possibly allow for the diversification of portfolios – which is also a good thing, she added.