Much talk has taken place in the media over the past year together with questions from clients regarding prescribed assets?
Now what are prescribed assets? Prescribed assets are essentially that portion of a retirement fund’s assets that are required, by law, to be invested in certain government-approved instruments. Prescribed assets were introduced into South Africa for the first time in 1956 and the first prescribed assets were South African government bonds.
Prescribed assets remained in place until 1989, at which point they were scrapped.
The “furore” around prescribed assets arose after the launch of the ANC’s 2019 election manifesto, which proposed to “investigate the introduction of prescribed assets on financial institution funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation whilst considering the risk profiles of the affected entities”.
Much like the Apartheid government, the ANC government has essentially run out of funding options, hence this proposal to investigate.
Currently, regulation 28 of the Pension Funds Act governs how pension fund assets are to be invested – for example maximum equity exposure of 75%, maximum international exposure of 30% with a maximum exposure elsewhere in Africa of 10%)
The preamble to Regulation 28 states that “a fund has a fiduciary duty to act in the best interest of its members”. A policy of prescribed assets would first require an amendment of regulation 28.
We must be reminded however that the ANC election manifesto indicated a proposal to investigate only. All market commentators, rightly so, will acknowledge that prescribed assets are a definite negative from an economic perspective.
I came across this following quote from Chuck Swindol “We are all faced with a series of great opportunities brilliantly disguised as impossible situations.”
In South Africa, we are faced with what may appear to be many impossible situations, as the talk of prescribed assets would appear to be to many but let’s rather use it as a great opportunity.
As the saying goes, every cloud has a silver lining. As a South African who wants to see South Africa prosper and present good opportunities for my children, maybe this talk around prescribed assets can encourage debate on sustainable developmental ideas for our country.