EPPF notes recent media reports on the issue of prescribed assets. In its election manifesto, the governing party states that it will “engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy, through prescribed assets.” It’s important to note that this proposal does not reflect the position of Government as yet, and has not gone through the necessary legislative processes. However, we recognise the matter is important to our members.
While no details have been provided by the governing party on how it intends to implement prescribed assets, the South African experience is one in which prescribed assets typically take the form of a regulatory instrument used to direct institutional investors, such as pension funds, to invest in certain asset classes. These are usually investments in government issued bonds and/or projects.
As custodians of our members’ capital, EPPF invests in assets with the primary objective of obtaining risk-adjusted returns that will enable us to pay benefits to our members as they become due. We apply a sustainable investing approach that includes consideration for environmental, social and governance (ESG) matters. This is achieved through our investment strategy and is contained in our Investment Policy Statement, as required by law. The investment strategy is reflective of the strategic asset allocation and is informed by an actuarially-sound, asset-liability management process for a defined benefit pension fund, like EPPF.
This process, coupled with the ability to select from various investment opportunities, enables EPPF to allocate funds strategically, targeting investments that maximise
risk-adjusted returns. This, in turn, strengthens our ability to fulfil benefit payments for our members. Prescribed assets, or any mandated investments and limitations on investment choices, generally result in less-than-ideal investment decisions for pension funds, hindering their capacity to generate the necessary returns for fulfilling benefit payments. We therefore do not support prescribed assets as a regulatory approach.
Concurrently, we advocate for infrastructure investment in South Africa, which presents an attractive opportunity for pension funds. This asset class offers long-term investment potential, diversification, as well as inflation-resistant returns, and the capacity to stimulate much needed economic growth and job creation. However, the realisation of these benefits hinges on the effective implementation of governmental policy reforms that are currently in progress. Coupled with market-driven incentives, these reforms are poised to catalyse increased capital flow towards infrastructure projects.
EPPF will continue to monitor the situation and will keep you informed if there are developments.
At this stage, no action is required from you.
