Kicking and screaming
Industry opposes investments that President wants
PRESIDENT Thabo Mbeki’s State of the Nation address happens on 9 February. He will, as usual, sketch his vision for the SA economy. But the President’s wishes don’t always come true. Some of the grand plans for the SA economy aren’t getting off the ground.
Mbeki has repeatedly expressed the wish that institutional investors invest 5% of their funds in socially desirable investments. But only part of this vision is materialising, as retirement funds are refusing to come to the party.
In his State of the Nation address after the 2004 election, Mbeki said: “We will work to raise the rate of investment in the first economy. To this end, we will engage with our social partners to implement the decision taken at the GDS (Growth and Development Summit in 2003) that 5% of the funds held by the institutional investors will be invested in the real economy. This discussion should be completed before the end of the current calendar year.”
It’s almost three years later, and the discussions are still continuing. Dennis Dykes, Nedbank’s chief economist who led the business sector’s position in the National Economic Development and Labour Council (Nedlac), says things have been “messy”.
“At first there were misconceptions about what the original GDS agreement meant. Labour felt that all sectors of the economy – and not just the financial sector – had to be included in the 5% rule. Then it was decided that the onus must be on the financial services sector and that negotiations should take place under the auspices of the Financial Services Charter (FSC).”
According to the charter, life offices, retirement funds and banks have agreed to allocate R122bn to socially desirable investments. The charter breaks these investments down into two components – black economic empowerment financing and targeted investments. The latter consists of transformational infrastructure, low-income housing, black small business financing and black agricultural financing. However, the GDS agreement envisaged the addition of job-creating investment in labour-intensive sectors.
The Institute for Retirement Funds (IRF) signed the charter on behalf of retirement funds. But, in 2005, the pensions industry pulled out of the charter, saying the IRF had no mandate to act on its behalf.
Leon Campher, executive director of the Investment Managers’ Association of SA (Imasa) – which represents the big fund managers – says Imasa’s view is that one can’t expect pension funds to make available the finance envisaged in the charter. He says each fund is different with a different board of trustees and a different mandate and it’s up to each individual fund to decide what to do or not to do.
“It’s difficult for the retirement industry to speak with one voice. We have tried discussions with retirement funds and their consultants on what socially responsible investments (SRI) might be acceptable, but so far we have not come up with a universally accepted position,” Campher says.
Some pension funds have indicated that the only circumstances under which they will channel funds to socially desirable investments would be if prescribed assets were introduced and if they were compelled by law. Campher says Imasa is opposed to such a move.
Magda Wiercycka, CE of Sygnia Asset Management, says pension funds’ investment in socially desirable investments is negligible. She estimates about 0,01% of assets of R1 trillion (including the Public Investment Corporation) is invested in socially desirable investments. This means there would have to be a huge swing if 5% – R50bn – is to be invested.
It’s clear that pension funds are only going to come to the party kicking and screaming. The key issue is that they won’t want to invest funds in areas they believe won’t provide a good return for their members. It’s crucial that government works with the fund managers at demonstrating that socially desirable investments can also offer good returns.
But, good returns won’t always be on offer. One example that comes to mind is financing social infrastructure in bankrupt municipalities, where communities’ ability to pay for services is limited. On paper, returns might look good, but in reality the financier might face defaults on payments.
No universally accepted position. Leon Campher
Investments are negligible. Magda Wierzycka