Proposed amendments to Regulation 28: What you should know

National Treasury's proposed amendments to Regulation 28 of the Pension Funds Act have sparked a positive reaction from industry experts, signaling a potential boost to South Africa's economy. The Act, which currently limits the extent to which retirement funds can invest in specific assets or asset classes, is set to undergo changes that aim to provide pension funds with more flexibility to allocate capital into infrastructure and private equity. This move is seen as a step in the right direction towards unlocking billions of rands of potential investment in critical sectors like power, healthcare, education, and more. During a recent CNBC Africa interview, David Moore, Head of Alternatives at Alexander Forbes Investments, and Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association, shared their insights on the proposed amendments. Moore and Van Lill both expressed optimism about the changes, highlighting the positive impact they are expected to have on the country's economy. One key theme that emerged from the discussion was the potential for significant capital to be unlocked through the amendments. Moore emphasized that the numbers were substantial, with trillions of rand in pension fund capital under management in South Africa. By making slight adjustments to the percentage allocations allowed in different asset categories, the amendments could free up billions of rands for investment in infrastructure and private equity. Van Lill pointed out that the proposed changes would offer pension fund trustees more visibility and control over their investments by clearly delineating between different asset classes, such as private equity and hedge funds. This increased transparency is expected to facilitate better decision-making and monitoring of investment performance. The conversation also touched on the risks associated with investing in illiquid assets like infrastructure and private equity. Moore highlighted the longer time horizon and valuation challenges that come with these investments, underscoring the need for careful due diligence by pension fund practitioners. Van Lill echoed this sentiment, emphasizing the importance of aligning investment decisions with the risk and return profiles that are suitable for each fund. When discussing the potential impact on critical sectors like power infrastructure, both experts agreed that the amendments could pave the way for increased investment in projects that support the country's energy needs. They noted that the changes could unlock immediate capital for essential infrastructure projects and drive growth in sectors like energy, healthcare, and education. Looking to the future, Van Lill projected that the amendments would set the stage for significant growth from 2022 onwards, as pension funds begin to capitalize on the new investment opportunities. The additional allocation for investments in the rest of Africa also presented an exciting prospect for regional integration and development. Overall, the experts commended the government for its willingness to consult with the private sector and make positive changes to regulations like Regulation 28. While acknowledging the progress, they also stressed the importance of maintaining trust between the public and private sectors to ensure that investments are channeled into impactful and sustainable initiatives. As South Africa moves towards implementing these amendments, the spotlight is now on how effectively pension funds and private equity firms will utilize the newfound flexibility to drive economic growth and social development in the country and across the continent.