Draft amendments to regulation 28 of the Pension Funds Act were published for comment in February 2021 and October 2021. The final draft has now been tabled in Parliament for review, where after the amendments will be published in the Government Gazette.
The amendments are aimed mainly at making it easier for retirement funds to invest in infrastructure. Some of the more important amendments are as follows.
A definition of “crypto-asset” is introduced, and a fund is prohibited from investing in crypto-assets.
The definition of “hedge fund” is replaced by a new definition, and it is stipulated that a fund may invest in a hedge fund, subject to conditions that may be prescribed.
“Infrastructure” is defined as “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”. This includes both public and private infrastructure.
Infrastructure is not introduced as a new asset class but is recognised within the existing asset classes specified in regulation 28. The aggregate exposure of a fund to infrastructure, excluding any debt instrument issued or guaranteed by the South African government, may not exceed 45% of the total assets of the fund.
The exclusion of the look-through principle in respect of the underlying assets of a hedge fund or private equity fund, does not apply in the case of infrastructure investments in a hedge fund or private equity fund.
A new Table 2 is inserted in regulation 28, which must be used for reporting the top 20 holdings in infrastructure investments.
The aggregate (in other words combined) exposure limit to the following is increased from 35 percent to 45 percent:
• certain debt instruments not listed on an exchange;
• preference and ordinary shares in companies, excluding shares in property companies, not listed on an exchange;
• immovable property, preference and ordinary shares in property companies, and linked units comprising shares linked to debentures in property companies, not listed on an exchange;
• hedge funds;
• private equity funds
• any other asset not referred to in Table 1 of regulation 28.
The limit applicable to private equity funds is increased from 10% to 15%.
The aggregate (in other words combined) exposure limit to the following is increased from 15 percent to 20 percent:
• preference and ordinary shares in companies, excluding shares in property companies, not listed on an exchange;
• private equity funds.
The aggregate exposure by a fund per issuer or entity, in respect of all asset categories specified in Table 1 of regulation 28, irrespective of the limits referred to in Column 1 of Table 1, must not exceed 25 percent of the aggregate fair value
of the total assets of the fund, excluding any debt instruments issued by, and loans to, the government of the Republic and any debt or loan guaranteed by the Republic.
The maximum exposure by a fund in respect of housing loans to members is decreased from 95% to 65%. The new limit will apply in respect of housing loan guarantees entered into on or after 1 September 2023. The limit will not apply in respect of housing loan guarantees that have been entered into prior to 1 September 2023.
Regulation 28(8)(b) currently makes provision for certain assets to be excluded in applying the limits set out in regulation 28. These exclusions will no longer apply once the amendments to regulation 28 come into effect.
The amendments will come into effect on 3 January 2023.