Opportunity knocks, loudly and desperately Retirement funds must take the lead. If they have to wait for government they could wait forever.

Don’t breathe too easily just yet that the threat of prescribed assets is forever off the table. Rather assume that it will loom, as a sword of Damocles, depending on how institutional investors respond to the revised Regulation 28, still in draft, purportedly intended to facilitate investment in infrastructure.

There’s an element of duplicity in the new Reg 28 being welcomed by pension funds. It’s as if their investment in alternatives had been cramped by the old Reg 28. Yet few ever approached its ceilings. Perhaps their enthusiasm stems partly from relief that prescribeds remain the great unmentionable.

That’s notwithstanding the reality. SA desperately needs infrastructure developments on a scale unaffordable by a depleted fiscus. It’s depleted by having perpetually to top up for squander. Also, many existing state-owned infrastructure projects are in decay. They require massive refurbishment at taxpayer expense.

This is one level of the infrastructure challenge. Over and above it are demands for new infrastructure projects which must necessarily rely for finance on retirement funds.

Noble intentions

Proposed amendments to Reg 28, which set out prudential guidelines under the Pension Funds Act for funds’ investments, are intended to allow for the “infrastructure gap” to be bridged. This is done through a series of redefinitions and revised ceilings; for instance, a 45% maximum exposure to domestic infrastructure across all asset classes.

Importantly, and sensibly, the decision to invest in any asset class remains the decision of retirement funds’ trustees. But they can only make decisions based on the projects they create or are created for them. In the face of urgency, their wait for offerings from the state runs indefinitely from one year to the next.

At present the pockets of people’s savings under management of retirement funds, which should lend themselves to long-term horizons, are overconcentrated on listed equities and government bonds. Their need for prudential diversification should theoretically lay the basis for an ideal marriage, between the public sector on the one hand and private-sector funds on the other, to live happily ever after in an infrastructure bliss.

But only theoretically. So long as the principle of trustees’ fiduciary duty endures, private sector confidence in the public sector is too low for the partnership to be uncritically embraced. Suffice the testimony by ANC chairperson Gwede Mantashe to the Zondo commission on the overlaps of state and party, and the tolerance of maladministration.

Such is the state’s record of governance failure and operational lethargy that President Cyril Ramaphosa’s whole “kickstart” ambition smacks of fantasy.

Instead of advancing a focused clutch of projects for see-through to yield and impact, government has identified a myriad wish list impossible to assess. Instead of clarity on whether Reg 28 accommodates only public infrastructure, to the exclusion of private, there’s obscurity. Instead of boldness in the unlisted space, which has greater potential than listed for local content and job creation, caution is the watchword.

In a report commissioned from Intellidex by Business Leadership SA, strong recommendations are made for infrastructure investment to be stimulated (see box). The only surprise in them, long enunciated, would be acceptance and implementation by the ruling party in an ideological time warp. It shows in that, when public-private cooperation might have been expected to flourish through the Covid crisis, it failed.

Active funds

For its part, the private sector bristles with infrastructure initiatives. Asset managers Old Mutual Alternative Investments and Futuregrowth, to name two, are shining participants.

In May last year Stanlib launched its Khanyisa Impact Investment Fund, managed by Stanlib Credit Alternatives, targeting a return of 4,5% over rolling 12-month periods. More recently, in September, Novare started to build a R2bn impact fund with a targeted return of cpi + 12% mainly from the agriculture, manufacturing and infrastructure.

Most recently, RisCura launched SA’s first Impact Fund of Funds investment series. It focuses on unlisted debt, unlisted property an unlisted equity. The fund of funds structure enables “a pooling mechanism for long-term impact capital that can provide a stable source of funding for commercially competitive impact and development projects”, points out MD Malcolm Fair, while also helping to mitigate risk and liquidity concerns.

Seemingly off the top of his head, Dean Moore of Alexander Forbes Investments rattles off a sample list of available opportunities within the private equity and infrastructure classes. None are “public infrastructure”, but he believes that all can provide pension funds “with attractive inflation-beating returns that complement traditional asset-heavy portfolios”.

Pension funds had better grasp the nettle. Or else. Imagine a government raid on their assets to support vanity projects managed by cadres. Not too hard to imagine, unfortunately.

THE DISEASE OF DEAFNESS

Maybe, in its desperation for money, government will at last listen to recommendations for the stimulation of investment in infrastructure. It’s been said before, again and again, but this time it’s from the Intellidex research endorsed by Business Leadership SA.

There’re reminders of what sits in the bag of promises unfulfilled. There cannot be a public-private partnership when one party doesn’t hear the other.

  • Interventions that are not subject to the binding constraints of capacity shortages and funding are arguably the simplest for the state to implement, argues Intellidex. Policy changes essentially “free” to government include: Opening up own-generation licensing for companies to easily build new electricity-generating plants of over 1MW;
  • Licensing spectrum for cellular networks to expand capacity and grow 5G networks;
  • Concessioning by state-owned enterprises, particularly ports and rail, for private companies to use existing infrastructure;
  • Finalising the Mineral & Petroleum Resources Development Act and Mining Charter to remove policy uncertainty and allow investment to restart.