Regulation 28 amendments
The National Treasury recently released draft amendments to Regulation 28 of the Pension Funds Act. The main aim of these intended amendments is to make it easier for retirement funds to invest in infrastructure, given the current low economic growth environment. In addition, the draft amendment stipulates the splitting of ‘hedge funds’, ‘private equity’ and ‘any other assets not listed in this schedule’ as stand-alone asset classes.
At present the current legislation does not place infrastructure investments into a specific category and such investments can fall into any asset class (i.e. it is spread across equity, bonds and private equity). On the back of this many retirement funds cannot report consistently on their allocation to infrastructure investments, making the data analysis difficult.
The draft amendments also recommend that the asset category for ‘private equity, hedge fund and other assets’ in Regulation 28 be separated as stand-alone asset classes. This will allow for specific limits to each of these asset classes.
It has also been reiterated that the decision to invest in any asset class, including infrastructure, continue to sit with the board of trustees of retirement funds.
Below are the details of the proposed amendments:
- The proposed amendment introduced a detailed definition of ‘infrastructure’.
- The collective limit of 15% applied to the collective asset class ‘hedge funds, private equity and any other assets not listed in this schedule’ will fall away.
- The hedge fund limit will be set at 10%, private equity limit at 10% and a limit of 2.5% will apply to ‘other assets not listed in this schedule’.
- The new overall domestic exposure limit for infrastructure across all asset categories may not exceed 45%, with an additional limit of 10% in Africa.
- Aggregate exposure to an entity or issuer may not exceed 25% of the total assets of the fund.
Once finalised, the proposed Regulation 28 amendments would mean that local pension funds could invest up to 55% of their fund value in South African and African infrastructure. National Treasury published the draft amendments to Regulation 28 of the Pension Funds Act on 26 February 2021, with comments to be provided by 29 March 2021.
In providing comments to the proposed regulatory changes, National Treasury states that ‘the overall risk and long-term sustainability of the retirement funds must be taken into account, as well as the fiduciary responsibility of trustees to get good value outcomes for members.’