According to the National Treasury, pension funds would be able to spend 45 percent of their resources in infrastructure projects beginning of the next year.
This follows the Department’s publication on Tuesday of the Regulation 28 of the Pension Funds Act’s final modifications.
Regulation 28 safeguards retirement fund member savings by limiting the amount that funds may invest in a certain asset or in specific asset classes, and it minimizes excessive concentration risk.
Regulation 28 was published in accordance with section 36(1)(bB) of the Pension Funds Act.
Although the regulations, according to the Treasury, expand the range of possible investments for retirement funds, the trustees of each fund, who decide the investment strategy for any fund, continue to have the last say on any investment.
These changes were made in response to two rounds of public input in 2021.
By raising the maximum limitations that funds may invest in, the amendment aims to clearly enable and refer to longer-term infrastructure investment by retirement funds.
To this aim, the amendments define infrastructure and set a 45 percent exposure limit for infrastructure investment.
The line between hedge funds and private equity has been divided to make infrastructure and economic development investments easier.
The allocation for private equity assets will now be distinct and greater, increasing from 10% to 15%, according to the department.
Retirement funds will still be unable to invest in cryptocurrencies. Recent market volatility in such assets shows that a cautious approach is necessary due to the high volatility and unregulated nature of crypto assets.
Treasury stated that a 25 percent cap has been established for retirement fund exposure to any one entity (business), not just infrastructure, across all asset classes.
The debt instruments issued by and loans to the Government of the Republic, as well as any debt or loan that the Republic guarantees, are an exemption to the per entity cap, according to the statement.
“Only for new loans, the asset allocation for housing loans provided to retirement fund members will decrease from 95% to 65%.
This is done to prevent fund members from abusing the housing loan program.
The National Treasury will continue to supervise this area of investment because it recognizes the crucial role that home ownership plays in building wealth and in retirement.
Only investments in hedge funds that have received CISCA approval will be allowed, in order to harmonize different regulatory methods and achieve uniformity.
To allow the authorities to get crucial data on underlying exposures as part of understanding and monitoring linkages in the financial system and for proactive supervision, the reporting exclusion on look-through of CIS and insurance policies has been lifted.
To give regulators and fund managers time to comply with the new regulations, the department said that revisions will go into effect on January 3, 2023.
The standard for reporting requirements in line with the new Regulation 28 is now being finalized by FSCA, and it will shortly be released for public discussion.