National Treasury has published the final amendments to Regulation 28 of the Pension Funds Act that will take effect on 3 January 2023. 

The issuing of the final amendments follows two rounds of public comment in 2021.

‘The amendments aim to enable and reference longer-term infrastructure investment by retirement funds by increasing maximum limits that funds may invest in. To this extent, the amendments introduce a definition of infrastructure and set a limit of 45% for exposure in infrastructure investment,’ National Treasury said in a statement.

‘The limit between hedge funds and private equity has been split to facilitate infrastructure and economic development investment further. As a result, there will now be a separate and higher allocation to private equity assets, which is 15% increased from 10%,’ the department added.

Retirement funds can also invest 10% of their assets in hedge funds. Previously retirement funds could invest a total of 10% of their assets in private equity and hedge funds combined.

The latest amendments also include a new definition of a hedge fund that matches that contained in the Collective Investment Schemes Control Act. 

Southern African Venture Capital Association (Savca) non-executive director Langa Madonko welcomed the separation of private equity and hedge funds in the latest version of Regulation 28. This was because the two asset classes deliver different outcomes for investors.

Savca also welcomed the increase in the limit for infrastructure investments. 

Protea Capital Management CEO Jean Pierre Verster (pictured above) said he was glad that the latest Regulation 28 amendment separated the allocation to private equity and hedge funds. 

‘It is slightly disappointing that the private equity category has a 15% maximum limit while the hedge fund category has stayed at a 10% limit. I would have hoped that Regulation 28 would have increased the limit for hedge funds to 15% to level the playing fields between private equity and hedge funds,’ he added.

The amendment defines infrastructure as an asset with its primary objective of developing, constructing, or maintaining physical assets and technology structures and systems to provide utilities, services, or facilities.

Futuregrowth Asset Management said in a statement that it was still of the view that this definition was too broad and would have ‘unintended consequences’. 

‘Listed instruments (equity and debt) could be considered as infrastructure (eg MTN, Vodacom, Netcare, etc), which is especially problematic given the National Treasury has placed an overall 45% cap on infrastructure investments,’ Futuregrowth added. 

Over the next two decades, the infrastructure funding shortfall is about R1.8tn covering a range of projects, Futuregrowth said. 

No to crypto
Regulation 28 still bars retirement funds from investing their members’ money in crypto assets. 

‘The excessive volatility and unregulated nature of crypto assets require a prudent approach,’ National Treasury said. 

Regulation 28 caps retirement fund investments in any entity at 25% across all asset classes. However, one exception is debt instruments issued by and loans to the South African government and any debt or loan guaranteed by the state. 

‘The asset allocation to housing loans granted to retirement fund members will be reduced from 95% to 65% in respect of new loans only. This is meant to curb abuse of the housing loan scheme by fund members,’ the National Treasury said. 

‘The Financial Sector Conduct Authority is in the process of finalising the standard on reporting requirements for the revised Regulation 28 and will issue it for public comment soon,’ the department added.