Regulation 28 of the Pension Funds Act has undergone final revisions, which have been issued by the National Treasury and make out the new restrictions and requirements for pension funds to invest in certain assets.
Regulation 28 eliminates excessive concentration risk by restricting the amount that funds may invest in a certain asset or in a specific asset class, protecting the investments of retirement fund members.
The laws expand the range of possible investments for retirement funds, but they continue to defer to the trustees of each fund, who establish the investment strategy for every fund, for making the ultimate decision on any investment.
These laws have undergone some modifications as a result of the published revisions, including the addition of a definition of infrastructure and a 45 percent cap on exposure to infrastructure investment. The new 45 percent restriction for exposure to foreign assets is also confirmed by the laws, which investors and economists have applauded.
By raising the maximum limitations that funds may participate in, the amendment's goal is to expressly authorize and refer to longer-term infrastructure investment by retirement funds, according to Treasury.
"The boundary between hedge funds and private equity has been divided in order to promote investments in infrastructure and economic growth even further. The allocation for private equity assets has been raised from 10% to 15%, and will now be distinct and higher.
Notably, retirement funds will still be barred from purchasing cryptocurrency. According to Treasury, "recent market volatility in such assets illustrates the need for a conservative approach given the high volatility and uncontrolled character of crypto assets."
To further reduce retirement funds' exposure to any one entity (business), not only infrastructure, a 25 percent cap has been established across all asset classes.
The government debt, loans to the government, and any debt or loan that is guaranteed by the government are the only exceptions to the per entity cap. Additionally, the asset allocation for home loans provided to retirement fund members would be lowered from 95% to 65% for all new loans.
"This is intended to prevent fund members from abusing the home loan program. The National Treasury will continue to supervise this sector of investment because it recognizes the crucial role that home ownership plays in wealth generation and retirement.
Only investments in CISCA-approved hedge funds will be allowed in order to harmonize multiple regulatory approaches and achieve uniformity.
To provide regulators and fund managers the opportunity to comply with the new requirements, the revisions will go into effect on January 3, 2023.
According to Treasury, the Financial Sector Conduct Authority is nearing completion of the standard on reporting obligations that are in line with the updated regulation 28 and will shortly release it for public discussion.
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