Deputy Finance Minister David Masondo has urged retirement funds, including asset managers, to rethink how they have done business in the past and assist the economy to achieve high levels of growth.
This comes as the debate rages on about the government permitting pension funds to invest 45% of their capital in infrastructure projects after the National Treasury published the final amendments to Regulation 28 of the Pension Funds Act in 2022.
Regulation 28, issued in terms of Section 36(1)(b) of the Pension Funds Act, protects retirement fund member savings by limiting the extent to which funds may invest in a particular asset or in particular asset classes, and prevents excessive concentration risk.
It also includes a framework for pension funds to allocate up to 45% of their assets to infrastructure, and further separates private equity and other assets from hedge funds in the limits to promote investment into infrastructure since these investments are often housed in alternative asset classes such as private equity and private debt.
Speaking at the Nedgroup Investments Cash Solutions Treasurers’ Conference yesterday, Masondo said Treasury was working on measures to encourage private investment in infrastructure projects.
“There is no government intention to interfere with the investment mandates and discretionary powers of the investment managers. Money owners must provide mandates to money managers, who must in turn generate good returns for clients and positively impact the socio-economic transformation,” Masondo said.
“The government respects the investment mandates of pension plans, the fiduciary duties of trustees, and their desire to maximize portfolio returns within acceptable risk tolerance levels.
“Regulatory instruments such as Regulation 28 provide prudential guidelines and an enabling framework to facilitate investments in infrastructure that complement the long-term investment horizons of retirement funds.
“What the Minister of Finance may announce in October 2024 during the Medium-Term Budget Policy Statement (MTBPS or 2025/6 Budget) may make the calls for the asset prescription less necessary.”
The Financial Sector Conduct Authority has, however, previously warned that any move to dictate to pension funds how to invest would infringe on their fiduciary duties.
Masondo said it made sense for pension funds to invest in infrastructure projects sense because institutions that receive savings should pay some rate of return to savers and for that reason, they must invest these savings.
However, he said the challenge was how to encourage these savings to go into the real economy in the form of start-ups, renewable energy, broad infrastructure, and industrialisation, instead of being concentrated in listed securities like companies listed on the JSE.
“While we recognize the short-term investment horizon of money market funds, we continue to invite the investment management industry to consider infrastructure asset classes that meet the investment mandates of clients,” Masondo said.
“Research is also now showing that Environment, Social, and Governance, and Impact Investing can provide better returns than standard investments if done properly and carefully.
“The key function of entities like banks and institutional investors like retirement funds, insurance companies, and asset managers is to receive savings from households and corporates. Savings are the most important source of investable funds in any economy. Empirical studies have shown a direct correlation between the two.”
According to the Association for Savings and Investment South Africa, the assets under management in local money market funds exceeded R400 billion, as of June 30, 2024.
This translates to approximately 6% of South Africa’s nominal GDP of R6.7 trillion, signifying the importance of this sector and the broader asset management industry.
“It is important therefore for retirement funds, including asset managers, to rethink how they have done business in the past, and see how they can assist the economy and society in achieving the right levels of growth and development,” Masondo said.
“Investments are arguably the most powerful channel to grow any economy, particularly an emerging economy like South Africa. Investments are about building and improving infrastructure like roads, renewable and green energy, telecommunications, and Industrialisation.”
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