The National Treasury today issued the second proposed modifications to Regulation 28 of the Pension Funds Act, which will allow retirement funds to invest up to 45 percent of their assets in South African infrastructure.
The Pensions Fund Act revisions came after many individuals advocated for additional infrastructure investment in light of the current poor economic growth scenario. The National Treasury stated in February of this year that hedge funds managing retirement money might now invest in bridges, highways, cellular towers, and other infrastructure in the country. The provision, however, is voluntary, as retirement funds are not required to invest in infrastructure.
According to the Treasury, retirement funds can only invest 45 percent of their assets in South African infrastructure, with a maximum of 10 percent invested outside of South Africa, but only in Africa. This brings the overall maximum infrastructure exposure to 55%.
The retirement funds were to invest in installations, structures, facilities, systems, services, or processes as defined by the Infrastructure Development Act in the first amendment, which was announced earlier this year. Furthermore, the pension legislation mandated that the infrastructure be included in the national infrastructure plan, excluding private sector infrastructure and infrastructure located outside of the country but inside Africa.
The term infrastructure has been redefined in the present amendment to mean “any asset class that consists of physical assets created for the provision of social and economic utility or benefit to the public.” This definition, according to the National Treasury, better accounts for the United Nations’ Principles for Responsible Investment (UNPRI) and input from the Association for Savings and Investment South Africa (ASISA)
Furthermore, the new modification has made it considerably easier for retirement fund managers to comply, as the prior regulation required retirement funds to produce reports on all of their infrastructure investments, whereas the new revisions only need reports on the 20 largest projects.
Finally, the new amendment has added a new prohibition in Regulation 28 on the investing of retirement savings in crypto assets. According to the Treasury, retirement money should not be invested in cryptocurrencies since they are deemed to be extremely risky. The Treasury further claims that this limitation is consistent with the Intergovernmental Fintech Working Group’s (IFWG) policy proposal to prohibit collective investment plans and pension funds from holding crypto-assets.
Public comments on the new modifications are requested, and the comment platform will be open until November 16, 2021.