Fund managers fight prescribed assets
The ANC plans to introduce legislation to compel pension fund managers to invest in government stock as part of its plans to grow the economy and put greater investment into infrastructure development.
This would require an amendment of regulation 28 of the Pension Funds Act, which sets the maximum level that pension funds and life insurers can hold in the various asset classes, such as property, government bonds and listed shares, but does not prescribe minimum investments in asset classes.
In its election manifesto, released on Saturday, the ANC said it would “engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets”.
However, the asset management industry will oppose asset prescription.
The chief investment officer of Makwe Fund Managers, Makwe Masilela, said on Sunday that prescribed assets should be used only in such a way that they gave good — or at least decent — investment returns, or else pension funds would struggle to meet their liabilities.
“Currently, we have some local projects that offer good if not decent investment returns, and pension funds are investing in them. So the local economy needs to have more such projects to attract more necessary investments, bearing in mind that most pension funds are defined contributions — should performance not be that great, then workers can find themselves in an unfortunate situation,” he said.
Aeon Investment Management chief investment officer Asief Mohamed said: “The proposed introduction of tougher prescribed assets is a red herring. Retirement savings are workers’ deferred wages.
“Again, the workers’ deferred wages are being used to prop up the deficiencies of government leadership.
“Asset owners might hesitate to invest in infrastructure projects due to concerns about the government’s ability to deliver viable returns on time and on budget.”
Alexforbes CEO Dawie de Villiers previously told Business Day: “Prescription should not happen and we are dead against it. The right way to do it, and which we would be very keen to support, is by making the projects accessible for pension funds to invest [in] by ensuring appropriate governance is in place and suitable risk-adjusted returns are achievable.”
The proposal has been made previously by the ANC, but has not been implemented, partly because of confusion and suspicion in the market and among the public about the real intentions of the proposal.
In its 2019 election manifesto, the ANC said only that it would “investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments”.
Increasing investment infrastructure to spur economic growth has been placed at the heart of President Cyril Ramaphosa’s administration since 2020. An infrastructure build programme is viewed by all stakeholders, including the government, business and labour, as the most effective way to stimulate economic growth.
However, the government is set to miss its own target set out in the National Development Plan of increasing infrastructure investment to 10% of GDP by 2030.
In his speech at the ANC’s manifesto launch, Ramaphosa said: “Investing in infrastructure, especially energy infrastructure, roads and railways, is critical for inclusive economic growth. Investment in energy, in particular, is necessary to end loadshedding and ensure a secure supply of electricity.
“To finance industrialisation and economic development, we will continue to transform the structure of our financial sector so that it provides affordable credit, invests in industrialisation, infrastructure and job creation, facilitates financial inclusion and prioritises domestic investment. We will better align monetary, fiscal and trade policy to support job creation and industrialisation.”
The policy proposal comes as the ANC seeks to retain its electoral majority, extending its 30year governance of SA by another five years. Various polls, including a recent poll by market research company Ipsos, show the ANC’s electoral support falling below 40% in the national and provincial elections, compared with 57.6% in 2019 and 45.59% in 2021.