In South Africa, the draft Amendments to Regulation 28 of the Pension Funds Act were published by National Treasury earlier this month. These amendments will allow retirement funds to invest up to 45% of their assets in infrastructure. This is set to open a huge potential source of funding for domestic infrastructure projects, but there has been some debate around whether this will be enough to help bridge the country’s infrastructure gap.

Draft Amendments to Regulation 28 of the Pension Funds Act (draft amendments), which were published by National Treasury earlier this month, will allow retirement funds to invest up to 45% of their assets in infrastructure, opening up a huge potential source of funding for domestic infrastructure projects. But will this help bridge the infrastructure gap, as Treasury hopes?

South African retirement funds are subject to quantitative investment limits, which are aimed at promoting diversification and limiting the risk of bubbles emerging from too many assets chasing too few opportunities. Whilst these limits are generous for ‘mainstream’ asset classes (for example, funds may invest up to 75% of their assets in equities or in non-Governmental debt instruments), ‘alternative assets’ get short shrift – funds may invest no more than 15% in private equity, hedge funds and ‘other assets’ combined.

The draft amendments, which were open for public comment until 29 March, open up opportunities for retirement funds to invest in alternative investments by allowing them to invest up to 15% of their assets in private equity funds, 10% in hedge funds and 2.5% in ‘other assets’. Most eye-catchingly, funds can now invest up to 45% of their assets in domestic infrastructure, plus an additional 10% for the rest of Africa. Infrastructure is not categorized as an asset class, like equities, debt instruments, or private equity or hedge funds. Rather, the limit acts as an overlay, recognizing that infrastructure investment may take many forms. Arguably, this imposes a limit where none currently exists (theoretically there is nothing stopping a fund investing 100% in infrastructure, provided that the investment is structured to fall within the existing class limits).

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