Outcry over ANC’s prescribed assets call
Asset managers have reiterated their warning that if the ANC were to carry through its manifesto pledge to force retirement and other funds to invest in stateowned enterprises and government-led infrastructure projects, it could increase risk for savers and result in lower returns.
The Association for Savings and Investment South Africa (Asisa) said the reintroduction of prescribed assets could result in unintended negative outcomes for retirement fund members and investors.
The country abandoned the policy in 1989. It had been in place for more than three decades while external capital access was restricted.
“Prescribing a minimum level of investment in certain assets is not the best global practice. Prescription is not synonymous with an open economy that should be encouraging attractive investment opportunities and would in fact deter investment,” the body said.
Asisa said investment portfolios hold R1.9-trillion of domestic long-term public debt and the savings industry has supported infrastructure as an asset class, meaning “there is no need to compel investment”.
“Public infrastructure is typically financed through taxes or government debt, and private businesses are funded by shareholders or private credit. When government policies direct capital that ultimately belongs to the country’s retirement fund members and investors towards a particular investment, often at below-market returns, the outcomes can be less than optimal for savers and, over the long term, for the economy,” it said.
But the governing party this week defended its 2024 election manifesto pledge to “engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy, through prescribed assets”.
The move would require an amendment to regulation 28 of the Pension Fund Act.
Zuko Godlimpi, deputy chair of the ANC’s economic policy formulation subcommittee, described the reaction to its asset prescription proposal as alarmist.
“The reaction so far has been, ‘Oh no, they are raiding our pensions, they want us to buy government bonds’. The manifesto is not predicated on a lunatic misunderstanding of how markets function and how the economy functions.”
Godlimpi said the ANC was trying to remedy an anomaly that the bulk of private retirement fund assets invested on the JSE were in the top 100 listed firms.
This meant companies outside the top 100 did not have as much access to investments and savings.
South Africa’s top 20 asset managers control almost R5-trillion in funds.
“We are trying to think of a creative way by which we can have a discussion about how better [to] restructure access to the savings portfolio in South Africa’s economy so that even the small to medium companies can have access at a scale that is similar to the bigger companies. We want to have proportionally improved access for smaller firms,” Godlimpi said.
Stanlib CEO Derrick Msibi said advocating prescribed assets as a solution to South Africa’s infrastructure and investment needs misinterpreted the issue and could “result in misguided actions”.
“While the current investment frameworks permit financial institutions to invest in these sectors, policy uncertainty remains a significant obstacle in mobilising capital for these vital areas. It is essential to remember that the funds at stake do not belong to asset managers but to pensioners, widows, orphans, and depositors. As stewards and fiduciaries, we act on their behalf,” Msibi said.
This was echoed by Shane Watkins, chief investment officer of All Weather Capital, who said “capital follows returns and does not need to be told where to go. Whenever you need to compel an investment by legislation, the implication is that the returns will be lower, or the risk is higher.” Watkins said pension funds were already fully invested and requiring new investment would mean current investments in their portfolios would have to be sold.
Capital invested into companies listed on the JSE was largely invested back into the economy and changing where funds were allocated would not increase the amount invested, but rather move funding already within the system.
“There is a belief that prescribed assets will raise investment in the economy. That is incorrect. We have low rates of investment and growth because of the poor economic fundamentals in the country. It is not a shortage of financial resources,” Old Mutual Investment Group fund manager John Orford said.
During a PSG Think Big Series webinar on Friday, Treasury director-general Duncan Pieterse said the reforms proposed for infrastructure development through public and private partnership in the budget speech sought to drive private sector investment into infrastructure without the need for prescribed assets.
Pieterse said that some of the reforms being introduced around infrastructure were “to allow the private sector to invest in infrastructure provision without us having to require any form, necessarily, of prescription”.
“If you start delivering the kind of instruments that we were talking about in the budget last week, infrastructure bonds or special vehicles through which the private sector can participate in government investment, then you achieve the objective of greater leverage of pension funds and other assets without having to resort to having to prescribe it,” Pieterse said.