Implications of revised Reg 28 draft governing pension fund investments

Cape Town-based attorney Rifke Gellman takes an indepth look at what the revised draft means for South Africa’s alternative asset management industry

The National Treasury has released a second draft of the proposed amendments to Regulation 28 to the Pension Funds Act.  This regulation limits how retirement funds  may invest their assets.  The first draft was released in February 2010 and what was proposed would have had the effect of severely restricting investments by retirement funds into hedge funds.  Treasury received 31 formal submissions in response to the first draft, covering a wide range of issues.  After considering the comment received and engaging with stakeholders, Treasury released the second draft on 2 December 2010 for comment by 28 January 2011.  Treasury has stated that it would prefer to receive only comments of a technical nature, given the extensive engagement that has taken place, but will consider submissions relating to broader principles where these raise new issues.  This indicates that unless serious flaws come to light in the comment process, the principles contained in this draft are likely to be carried through to the final version which Treasury intends to publish before the end of March 2011.

The first draft did not specifically provide for investments in hedge funds (or other alternative investments such as private equity funds) and required a look-through approach to be taken to the financial instruments underlying the fund.  This, together with the restrictions placed on derivative use and gearing would have had a very negative effect on the ability of retirement funds to invest in hedge funds.  This has been changed in the new draft which specifically provides for investments into hedge funds…


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