The much-debated “Regulation 28” restrictions imposed on retirement funds have made investors feel increasingly uncomfortable with having large exposure to either the local economy or the local stock market, despite its large exposure to rand-hedge stocks.

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Investors who are able to have greater direct offshore exposure in their investment portfolio may choose to exploit this flexibility in what is a very different state of affairs compared to many other points in our democracy. Traditionally Regulation 28 portfolios have had enough flexibility in their mandate to generate real returns for investors over the long-term. Within reason, we may need to question whether or not the current environment has detracted from what was traditionally an appropriate set of restrictions as determined through Regulation 28.

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The flee to cash has been prominent and increasing over the last several years. Investors have defaulted to “safe assets”, thus largely and arguably abandoning their long-term financial plan. With interest rates at a multi-decade low, cash is no longer the “safe haven” that it perhaps once was because inflation is expected to return.

The question remains, under the current Regulation 28 restrictions, what can investors and independent financial advisors do to improve the long-term outcome of pension funds without abandoning long-term growth assets. Research on the inclusion of South African retail hedge funds in a Regulation 28 portfolio is hard to find or largely absent for those who are seeking clarity through empirical evidence.

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