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Can changes to Regulation 28 be a panacea for our ailing economy?

A welcome proposed change is that private equity was delinked from hedge funds.
Image: Shutterstock

A group of panellists at the recent SAVCA Private Equity Conference debated National Treasury’s proposed amendments to Regulation 28. The regulation is part of the Pensions Funds Act and limits local retirement funds’ exposure to certain investments to ensure portfolios are well diversified and do not take on undue risk.

We expect the changes to provide much needed economic stimulus to South Africa’s struggling economy, the proposed changes to Regulation 28 provide retirement funds with an opportunity for a higher degree of diversification, greater access to sustainable and impact investing, and improved overall financial security for pension fund savers in the long run.

A welcome proposed change is that private equity was delinked from hedge funds and the investment limit for private equity will be increased from 10% to 15%. The proposed amendments also include increasing the limit local retirement funds can invest into South African and African infrastructure. Should the proposed changes become effective, retirement funds will be allowed to hold up to 55% of their value in infrastructure. It is hoped that such changes will make investing in infrastructure easier, which in turn should create jobs and spur economic growth.

SAVCA’s 2020 private equity industry survey showed that investment in African infrastructure has been an emerging theme over the past decade. Active investment from funds in various regions were funnelled into projects in energy, transport and ICT sub-categories.

This serves as a catalyst for development on the continent, in a way that fosters the achievement of targeted and specified developmental goals. Furthermore, infrastructure investment opens up new opportunities for add-on or related investments.

Changes are ‘hitting the mark’

Panel moderator Anne-Marie D’Alton, CEO of Batseta kicked off the session by asking Thomas Mketelwa, Principal Officer of the Kwa-Zulu Natal Municipal Pension Fund as to whether the changes hit the mark or not.

His response was that they were indeed hitting the mark but that things could be improved in places. “The changes may not have introduced the issue of infrastructure in the way we were hoping it would be introduced – as an asset class on its own,” he said. “But the bottom line is that we’re happy and would like the changes to be implemented without further delay. It’s an investment opportunity for us.”

Mantuka Maisela, chair of the Motor Industry Retirement Fund, was also positive about the changes. “Regulation 28 is going to bring hope to our people,” she said. She pointed out that unemployment is high and infrastructure development should uplift people by creating jobs.

Better definitions will help

Another change involves providing a more precise definition of what infrastructure investment means. Tebogo Kgosi, Deputy Principal Officer of the Transport Sector Retirement Fund, believes this will have many benefits. “It will enable better data collection and measurement,” she said.

According to the proposed definition, infrastructure includes installations, structures, facilities, systems, services, processes that relate to matters specified in Schedule 1 (of Section 1 of the Infrastructure Development Act of 2014).

“To us, the beauty of Schedule 1 is that it is diverse and a well-thought out definition that covers all areas relating to infrastructure,” said Kgosi. She did, however, comment that it would be preferred if the definition of infrastructure is included as part of Regulation 28 rather than in a separate act.

New allocation limits

According to Soyisile Mokweni, chair of the Consolidated Retirement Fund, the most important change is that hedge funds are no longer linked to private equity. “It’s fantastic that private equity investments now get a 15% allocation on their own,” he said.

“This regulation is giving us an opportunity to look at private equity and infrastructure investment as a way of having a meaningful impact on developing our own country,” commented Mokweni.

Execution by diverse and transformative boards is key

However, the changes to the regulation are only one part of the conversation. D’Alton questioned the panellists as to what else needs to be in place to ensure infrastructure investments materialise.

Maisela’s response was: “Diversity, including of expertise, is very important for boards, as is transformation and inclusivity. Trustees must use service providers who understand the plight of the people – who understand that some members may be in rural areas where there are no roads, toilets or bridges.”

She also advised boards of trustees to assign assets or give mandates to black asset managers who have roots within those communities and who truly understand the socioeconomic challenges they face.

Steps in the right direction

Drawing the session to a close, D’Alton highlighted the widespread support for the proposed changes to Regulation 28 across the panel and encouraged trustees to actively participate in the public consultation process.

Commenting on the session, van Lill said: “Overall, the session highlighted just how much work still needs to be done in this area for the implementation and execution of the proposed changes to be successful.

“However, ensuring alignment between retirement funds, that proper classification and definitions exist and that oversight and monitoring is effectively undertaken are all steps in the right direction,” she concluded.

Tanya van Lill is SAVCA CEO.


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Investment into infrastructure in Africa is best described as pouring water into a bottomless bucket and expecting it to fill.

Who in his right mind will invest 55% of his portfolio in SA and on top of everything else in infrastructure??

These people need serious help. It seems as though pension funds will be used for welfare projects and “Infrastructure” in SA is corrupt to the core and theft will be the order of the day.


If you still have a investments in SA subject to REG 28 don’t cry when you are a pauper when you retire.

This is just plain theft. “Disadvantage” is here to stay. Pension funds in this poor country is run by total idiots!!! Must be deployed illiterate cadres or something. Where do they find all these people????

agree. who is this panel…this is Step 1 to prescribed assets. next will be a % prescribed to state infrastructure.

When can I put my retirement funds in gold???????????????????????????????????????????????????????????????????????

Move your RA/Pension fund to a PSP (personal share portfolio). Buy as many gold shares as you like (up to 75% of the portfolio) with share limit constraints based on the market cap, add a gold ETF up to 10% – and you got your exposure. With the other 25% you need to hold cash/bonds/property shares.

Only the PIC will do this as with AYO.

Give us some examples of infratructure that can be built to generate cash return for pension funds? Are pension funds now going to manage enterprises? If there is an opportunity why would a company not list on the JSE? Private equity seems like a way to remove transparency from the pension fund.

So this would be optional and not mandatory?

I have a nice etoll gate to sell you, a few power stations, some SAA aircraft that will be flying soon; promise. Best of luck.

There quote a few. Old Mutual has a range of infrastructure funds, managed by AIIM:
They have performed well, but only available to institutional investors. There is also GAIA: who return inflation plus 7% (built into price escalation contracts).

Pension funds don’t need to manage anything, they need to allocate capital where there are attractive returns, and there are quite a few infrastructure opportunities – especially in the IPP space.

The change in Reg 28 just gives pension funds more opportunity to allocate more capital to these projects.

The reason a lot of these projects aren’t listed on the JSE is because there are liquidity constraints, so you need to find an investor with the same time horizon as your project, which is generally pension funds.

Charles, I am not convinced. The bulk of it in SA seems to be “REIPP” with a few toll roads and ACSA thrown in. My blunt feeling; these are just licenced scams to fleece the public and enrich “empowerment partners”. The REIPP rates in particular, at least for the early ones, were obvious scams, with electricity sale prices to Eskom well above international norms for the types of generation (not sure about recent REIPP’s as I am out of the loop now). And they are a drop in the ocean, hardly helping SA’s power crisis.

If government cannot be honest at all then the private sector should supply in open competition; no cozy little deals and zero government other than regulation (you cannot be player and referee).

I’m all for investments, especially in under developed regions. Funding these projects with corrupt governments as the debtor is risky. Especially African governments, where there is little credibility or respect for law. The SA government has done little to establish itself as a credible debtor.

It seems like the pensionfunds would rather try influence their members and lend a false sense of security than do the right thing and not pour their members money into the trough from which the construction mafia, BEE tenderpreneurs an ANC cadres drink. It is shocking how with the current track record of infrastructure mismanagement and fruitless and wasteful expenditure pensionfunds are considering it an investment. This is a clear barometer of the industies moral fibre.

How about full financial liberalization?

I think South Africans can make more money elsewhere than with Top 40 donkeys on the JSE.

This cannot possibly end well. Not if Government is involved. Show me one (just one) example of infrastructure success where Government lead the way.

Yes, infrastructures like the Gautrain was an Engineering Success, but will never be financially viable. Toll roads are another example.

Just use normal taxes correctly, without corruption.

Simple as that.

But Bullet trains and dreamy smart cities !!

The “normal taxes” are used up as above, corruption, bloated and useless “civil” service, gobbled up by SAA etc etc. Gone and nothing to show for it except bigger holes.

Exactly BenK….the proposed is just another function of TAX!

Thomas Mketelwa and the trustees of his pension fund better watch out. They are opening themselves up to accusations of not looking after their pension fund members best interests and delinquent behaviour.

As usual, the Government seeks to misrepresent the issue. There is no shortage of potential infrastructure funding but investors have been waiting for the Government to put some deals on the table. Changing Reg. 28 is a distraction and is not needed. The Government needs to get moving. Managing pension fund assets is becoming a chore with BEE managers, transformation status, ESG, infrastructure, etc getting all the attention while the beneficiaries, ordinary South Africans, are an afterthought. Maybe it is time for more funds to go ‘passive’ as a way of handling yet another over-politized and racialized activity.

Eskom pension fund has committed a lot of resources in this area. So far so good. But it will be 10-15 years before we start liquidating investments and measure performance/impact.

So far it looks appealing with good projected yields.

SAVCA as the industry body should publish realized returns, net of fees, of infrastructure fund managers.

Even more interesting, would be information on the pool of infrastructure fund managers and longevity within those teams if any. Highly important for an illiquid area of investment.

“She also advised boards of trustees to assign assets or give mandates to black asset managers who have roots within those communities and who truly understand the socio-economic challenges they face.”

It sounds like you’re making excuses before any money is “invested”.

It was going so well until we had to introduce race into the equation. Please, please, please. Equal opportunity does not mean equal outcome. Let the boards’ performance speak for themselves.

End of comments.





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