Proposed amendments to Regulation 28 of the Pension Funds Act

​​​​The second draft of amendments to Regulation 28 of the Pension Funds Act addresses several shortcomings in the first draft that stakeholders raised

On 2 November 2021, National Treasury published the second draft of the proposed amendments to Regulation 28 of the Pension Funds Act 24 of 1956 ("draft Regulation") for public comment.


The draft Regulation addresses several shortcomings in the first iteration, published in February 2021, that were raised by stakeholders.  The submissions on the first draft expressed general concern about the definition of "infrastructure", which was limited to installations, structures, facilities, systems, services or processes relating to matters specified in Schedule 1 of the Infrastructure Development Act 23 of 2014.  As a result, infrastructure was restricted to the National Infrastructure Plan ("NIP"), so it excluded infrastructure in the private sector and offshore.

According to the draft Regulation, infrastructure means ‘any asset class that entails physical assets constructed for the provision of social and economic utilities or benefit for the public.'  The effect is that infrastructure is now given a standalone definition which is not restricted to the NIP, and now includes both public and private infrastructure investment.

The proposed amendments introduce an upper limit of 45% for a fund's aggregate exposure to infrastructure.  This amount includes the aggregate exposure in the rest of Africa, but excludes debt instruments issued by, and loans to, the South African government or loans guaranteed by South Africa.

A second reporting table has been added to Regulation 28 that requires funds to disclose their top 20 infrastructure investments. 
The draft Regulation will repeal sub-regulation 8(b) of Regulation 28, which specifies categories of assets which may be excluded in applying the limits provided for in the draft Regulation (for example, life / long-term policies which comply with the requirements of Regulation 28).

Does the draft Regulation create a separate asset class for infrastructure?

There was a common misconception that the draft Regulation creates a separate asset class for "infrastructure", because of the way that Table 1 has been drafted.  Infrastructure investments will be made available through the existing asset classes, instead of a self-standing asset class. This effectively means that retirement funds can have an overall exposure to "infrastructure" of 45% across their assets.
While retirement funds are required to disclose their exposure to hedge funds or private equity ("PE") funds, the “look through” principle does not apply where the hedge funds or PE funds are classified as the final asset.  However, where the underlying assets of a hedge fund or PE fund are infrastructure investments, that must be disclosed.

Does the draft Regulation promote increased investments in infrastructure?

The draft Regulation fails to achieve its objective of driving economic growth and providing enhanced investment opportunities in infrastructure.  While infrastructure investments are subject to a 45% upper limit, this must be considered with the section 11(b) catch-all limit of 25% for all instruments per entity or issuer.

National Treasury has also clarified that the 45% is an upper limit, and not mandatory, meaning that funds will continue to exercise their discretion in choosing investment instruments.

The most novel departure from the current Regulation seems to be the reporting and disclosure obligations that will be imposed on infrastructure investments.

Hedge Funds

While Regulation 28 currently provides a standalone definition of “hedge fund”, the proposed amendments characterise hedge funds as collective investment schemes in terms of the Collective Investment Schemes Control Act 45 of 2002 ("CISCA"). This is a welcome development, as it aligns Regulation 28 with the treatment of hedge funds under CISCA.


The draft Regulation prohibits funds from investing in crypto-assets, whether directly or indirectly, as these assets have been noted as being very high risk.  This restriction aligns with the proposals found in the Intergovernmental Fintech Working Group (IFWG) policy, which proposed that the crypto-asset restriction on collective investment schemes and pension funds be maintained until further notice.
A fund may not invest in crypto-assets under the guise of investing in "other assets" not referred to Table 1.

The following definition of crypto-asset’ has been included in the proposed amendments:

'a digital representation of value that is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; applies cryptographic techniques and uses distributed ledger technology.'

This definition appears to indicate that National Treasury has not only cryptocurrency in mind, but other assets which may be considered crypto-assets, such as non-fungible tokens.


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