Retirement funds will be able to invest up to 45% of their assets in infrastructure from 3 January next year, when the amendments to regulation 28 of the Pension Funds Act take effect.
National Treasury published the amendments in the Government Gazette on 1 July.
Regulation 28 limits the extent to which retirement funds can invest in particular asset classes or individual assets, to protect retail investors from overexposing their capital to any one share or investment class.
“The [amended] regulations widen the scope of potential investments for retirement funds but continue to leave the final decision on any investment to the trustees of each fund, who determine the investment policy for any fund,” Treasury said in a statement.
The amended regulation 28 now includes a definition of “infrastructure”, which is “any asset that has or operates with a primary objective of developing, constructing and/or maintaining physical assets and technology structures and systems for the provision of utilities, services or facilities for the economy, businesses or the public”.
The final definition is less restrictive than what appeared in the initial draft of the amendments, where infrastructure was referred to as public projects that form part of the government’s national infrastructure plan.
The infrastructure allocation limit of 45% excludes debt instruments or loans either issued or guaranteed by the government.
Private equity limit increases
Another change is the splitting of the investment limit for hedge funds and private equity assets. Before the amendment, hedge funds, private equity funds and “other assets” were regarded as a single asset class, into which retirement funds could invest a maximum of 15%.
With the separation, the permitted allocation to private equity has been increased from 10% to 15%. The limit for hedge funds remains 10%.
According to Treasury, the purpose of splitting the private equity/hedge fund limit is “to further facilitate the investment in infrastructure and economic development”.
An amendment to the definition of “hedge fund” means retirement funds may invest only in hedge funds approved in terms of the Collective Investment Schemes Control Act.
The reporting exclusion on the “look-through” of collective investment schemes and insurance policies has been removed to enable the regulators to collect statistics on underlying exposures, “as part of understanding and monitoring linkages in the financial system and for proactive supervision”, Treasury said.
No crypto assets
Retirement funds will continue to be prohibited from investing in crypto assets. The amended regulation defines these as “a digital representation of value that is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; applies cryptographic techniques and uses distributed ledger technology”.
Treasury said the “excessive” volatility and unregulated nature of crypto assets required a prudent approach.
Housing loan reduction
The extent to which fund members can use their retirement savings for home loans has been reduced from 95% to 65%. The reduction applies to loan guarantees entered into from 3 January next year and is not retrospective.
Treasury said the change has been made to curb abuse of the housing loan scheme by fund members.
Single entity limit
Retirement funds will not be permitted to expose more than 25% of their assets to any one entity (for example, a company) across all asset classes – equities, debt, infrastructure or others. This limit will not apply to debt instruments or loans either issued or guaranteed by the government.
