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Prescribed assets ‘won’t work’ – industry

Asisa and Sygnia’s Magda Wierzycka weigh in …

The Association for Savings and Investment South Africa (Asisa) says that prescribing pension funds to invest in certain assets “did not work when introduced by the apartheid government and Asisa and its members maintain that it would have negative effects on the country should it be introduced now”.

It would “force the savings and investment industry to deploy the savings of ordinary South Africans into entities that have over the recent past been mired in State Capture and lack of delivery. As custodians of these savings we have to oppose this.”

In its 2019 Election Manifesto, the African National Congress on Saturday said it would “Investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation while considering the risk profiles of the affected entities”.

Read: ANC still eyeing pension assets

In response to questions from Moneyweb, CEO Leon Campher says: “Asisa and its members have publicly stated that we believe that ‘prescribed assets’ would not be beneficial for our country.”

While Campher first publicly criticised ‘prescribed assets’ in September, he was referring to prescription in the context of placing more assets with black-owned/-run managers. He was responding to calls from some quarters of government to accelerate transformation in the asset management industry.

Campher says that, to date, “the savings and investment industry has engaged extensively with various relevant parties on the potential impact of prescribed assets, including directly with government ministers tasked with infrastructure development, via Business Unity South Africa (Busa) into the National Economic Development and Labour Council (Nedlac), and via the CEO initiative.” He says the body is “empowered by a mandate from members that manage some R7.8 trillion of the nation’s savings and investments and is therefore recognised as a significant and relevant partner around government’s negotiation table”.

He points to evidence that government under President Cyril Ramaphosa has been very collaborative and says “if prescribed assets are tabled for discussion by government, we believe engagements with our industry will be equally constructive.”

‘Liquid cash’

Magda Wierzycka, CEO of Sygnia, has a more philosophical view. “If we look at it pragmatically, South Africa doesn’t have money. One only needs to look at our debt burden as a percentage of GDP to see that’s the case.

“If that is the case, one needs to look at the pools of capital available in South Africa as liquid cash.”

She says one of these is obviously the funds managed by the Public Investment Corporation (under mandate from the Government Employees Pension Fund). “That pool of assets is – in theory – available to government, and given that it is a defined-benefit fund, it is ultimately taxpayers who would fund any shortfall in its ability to pay pensions.”

She points to many countries that run such funds with only a partial reserve, meaning pension payments are being funded by the contributions of current taxpayers.

“The problem with the PIC,” says Wierzycka, “is that it hasn’t deployed its capital particularly effectively to date. There have been quite a number of ‘deals for pals’ instead of it and government applying their minds to how to utilise that capital in the best manner to grow the economy.

“The other pool of assets we have is the retirement savings pool. In effect, there is an inherent pact with government here: you save for retirement through these vehicles and, in return, you benefit from a preferential tax treatment.”

The question of whether prescribing how assets need to be invested within these investment vehicles is ‘right or wrong’ is a very difficult one: “Everything is a negotiation,” says Wierzycka.

Government ‘offers’

“Government could say ‘We’re putting tax concessions on the table, and in exchange you might have to deploy some of these savings in a specific manner’. This is all very theoretical, of course!”

The fundamental problem with looking at past ‘evidence’ of prescribed assets under apartheid, says Wierzycka, is that these rules existed when most retirement funds were defined benefit funds. “The liability for the payment of pensions fell on corporates – hence the requirement affected corporate balance sheets rather than individuals.”

She says that under this regime, individual members didn’t really have a voice in how the money was managed. “It was just an underpin to their future pensions.”

Fast-forward to today, and virtually all funds have converted to defined contribution arrangements.

“Your pool of assets is your pool of assets; you effectively retire with what you have accumulated. Maximising investment returns at an acceptable risk level should be the only consideration.”

In this scenario, mandating the concept of prescribed assets could be very problematic, says Wierzycka. “Members could claim that these are their assets, and that they should determine how their assets are invested.

“Rationally and irrationally, there would be a massive outcry if prescribed assets were to be introduced.”

She says that removing rights retrospectively, without something like ‘grandfathering’, could be legally problematic and open to challenges. It would also lead to reduced savings levels with people simply opting out of saving through retirement funds, which would create social problems later on.

More than enough funding available

Wierzycka says the issue has not been a lack of funding for suitable, well-managed projects. “There are funds and products with a particular focus on socially responsible investments, and money is available.

“Rather, there has been a shortage of viable projects and a shortage of credibility in how these projects are managed.”

Campher echoes this: “Asisa and its members believe that many of our country’s challenges can be overcome through effective public private partnerships (PPPs).”

He says members have deployed over R1.3 trillion in capital in support of government, local authorities and state-owned companies (primarily via bonds), as well as direct investments of R200 billion into projects, including renewable energy, township development, affordable housing, urban regeneration, student accommodation, water, roads and emerging farmers.

“Our industry is very keen to invest in the country and its infrastructure, provided government provides viable projects.”

Herein lies the rub.

“What you should first test,” says Wierzycka, “is the appetite of retirement funds for investment in infrastructure. There are [only] a handful of asset managers to speak to, so this won’t be hard! I think government will find there is more than enough appetite.”

All this talk of prescribed assets smacks of a knee-jerk reaction to find money, believes Wierzycka.

Instead, she says, government should be asking why the money hasn’t been deployed and trying to identify the brakes in the system that have prevented investment.

She also makes the point that the reference to prescribed assets in the manifesto document “is a very broad, blanket statement that doesn’t [actually] talk to government debt”.

Wierzycka says one can expect noise in the run-up to the elections in May. It won’t be clear how much is real and how much is rhetoric until later.

“But we’re certain to hear a lot more of it in the next five months.”

* Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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Well said Magda . The Anc manifesto only mentions more spending, but not more production . It is that simple . Create the plan and the evironment for a profitable project , and investors will happily invest .
Merely to spend more cash to satisfy voters , solves nothing , and only exacerbates the debt levels of government.

I am starting to go off her, it looks to me that she spends much more time doing PR jobs than sorting out the performance of the Unit Trusts sold by her company. They are not exactly top performers. Luckily I am not invested in them, most of my investments are out of the country.

…talking about investments outside SA, how easy is it to open say a Hungarian bank account in Budapest? (e.g. H&H bank, MKB Bank, Raiffeisen Bank, Erste Bank, others..?)

I may need one day a Hungarian physical address from one of your relatives, to help open account… Many banks may block non-residents from opening bank account(?)
(Can take wife also for week away Budapest holiday trip.)

@MichaelfromKlerksdorp I would say opening a non-resident account in any Hungarian bank takes 10-15 minutes. In the good old days one could open an account without identification, even under an assumed name like Mickey Mouse, but since the country joined the EU this is not allowed. BTW this was from the old pre-WWI Austro-Hungarian Empire days, the Austrians also had to drop it when they joined the EU. In Hungary tax is deducted from interest by the bank for residents, no deduction for non-residents, effectively getting higher interest. Anybody, residents or non-resident can open an account in either local or foreign currency. I am not certain that most banks would handle accounts other than US$ or Euro, maybe UK Pound. No currency controls in Hungary, so there is absolutely no restrictions on transferring money from the account to anywhere in the world. Most banks also do investments like Unit Trusts both local and foreign. The banks prefer if people bank via internet. Unfortunately Hungary is also signatory of the recent banking agreement which require them to notify the tax authorities of the account holder in both Hungary and the account holder’s official tax residency. You can get a card too (normally Mastercard or Visa) linked to the account which can be used anywhere.
The big drawback is the language. We have an account with the biggest bank, OTP. Normally in major bank branches one would not have problem communicating in English, but they have the habit of sending emails and electronic statements in Hungarian some of the times. I asked them to communicate with us in English because my wife does not speak Hungarian, but I found that about half the time they send things in Hungarian.

Thank you Hun. That is very insightful, especially how things have been & now since Hungary is in the EU.

I think most banks these days (especially when opening an account / initial contact) one would have to be physically present (and for the bank to do its “know your client” records). Thereafter, once online & other facilities are open, is should be easier.

Your wife can perhaps try Google Translate to help(?), and to respond in messages back. Just cut/paste sentences to/from the site. Link below:

https://translate.google.com/

Here is a “exercise” for your wife 🙂
Mondd el a feleségednek, hogy ne féljen a nyelvtől, miután megszerezte a Google Fordítót. Áldás a magyar barátomnak.

@MichaelfromKlerksdorp We have been using Google translate for years. Initially the Hungarian translation was completely useless, now it is better than the average English speaker in Hungary. It is on my android phone, and for me the most impressive feature is that it can understand my strong Hungarian accent too and translate to whatever local language required during our travels.

Asisa is part of the problem.Do not for a minute expect it to stand up for ordinary savers. I cannot find ONE comment from Asisa or Campher about what Regulation 28 is doing to your retirement fund returns…..but it (and he) has all the facts available.
Reg 28 suits the industry as it forces most of the retirement funds to be invested in local assets with the highest fee margins in the world. Any further relaxation on this would not be in their interest.
So please, Mr Campher,if you find prescribed assets unworkable and not in the interest of ordinary savers, what about Reg 28?
Would be a nice follow up for Hilton Tarrant.

The cheapest SP 500 tracker is now free( the manager makes money from the stock lending).

Now do you buy this for a long term investment or Eskom and SAA bonds? Forget the different asset classes-just look at the risk/return ratio!

Having said that if I ran a bankrupt corrupt government fearful of an election it makes a lot of sense to teach the rich whities a lesson where it hurts ie their pockets through their pensions. It is such a lovely big, easy to gather honey pot-the ANC gangsters must be salivating on what they could loot here-imagine the BEE finance company issuing the notes taking an admin fee before passing the funds on-what a party-the sheep population must be living in fear of this!!

Some cynical investors could imagine that their fund performance may improve if the fun damagers had less say through prescribed asset rules.

Even more so if the prescribed portion were exempt from management fees (there being no management)

The purpose of prescribed assets is often missed. When a government borrows money it issues bonds. When these are auctioned the market effectively determines the interest rate by the bond annual interest payment and the price the purchaser pays. Enter the regime: they create artificial demand with prescribed assets. This pushes the price of bonds up and the yield down. Thus the state pays less interest for the same amount of borrowing.

Since governments lie they will say investing in less volatile assets are ‘safer’ and its for your own protection.

“When plunder becomes a way of life for a group of men living together in Society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” Frederic Bastiat

This is expropriation without compensation, the nationalization of private assets. This is exactly what socialist governments do. They received the mandate from the voting majority years ago. The ANC has reached the point of no return. The economy crossed the “event horizon”, and what once was the biggest economy in Africa, is about to get squashed to the size of a pea.

Commentators do not understand that socialism and reason do not go together. Intelligent and logical reasoning holds no value to socialists. Those are the traits of free-market capitalists, “the enemy of the people”. Commentators who believe that “common sense will prevail” are thinking like capitalists. They are totally out of touch with reality.

If socialist politicians were able to understand the laws of economics, if they were able to analyze and interpret facts, and use logic to come to intelligent conclusions, they would not be socialist in the first place. In short – if an ANC politician had the brainpower to understand basic economics, he would be a member of the DA, FF+, Cope or IFP, not the ANC.

Sensei, your last paragraph is striking! Yes, I think you and RW Johnson will agree on a lot 😉

RWJ stated in his book “…SA can either choose between the ANC or a modern, western economy. It cannot have both.”

Absolutely brilliant comment.

The first para. describes those awful socialists to a tee.

Their whole system relies on breaking the 8th commandment.

“Thou shalt not steal”

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