ANC wants to use pension money for state-owned enterprises

The ANC 2024 Elections Manifesto reveals that the party wants to force South African financial institutions to invest in infrastructure development and the economy.

The election manifesto states that the ANC will “engage and direct financial institutions” through prescribed assets to invest their funds in local projects.

Simply put, prescribed assets will force asset managers and retirement funds to invest a percentage of their money into certain government-approved instruments.

Old Mutual’s Andrew Davison explained that prescribed assets are nothing new. In 1956, the Pension Funds Act was promulgated, and prescribed assets were introduced.

Pension funds were forced to invest a percentage of their assets under management in government bonds. The level of prescription peaked in 1977.

It started to fall in the eighties and was scrapped in 1989. During this 30-year period, funds were required to invest more than half their assets in SA government and parastatal bonds.

The ruling ANC revived the concept of prescribed assets in its 2019 election manifesto, which contained the following two references:

• Investing in the economy for inclusive growth – Investigate the introduction of prescribed assets on financial institutions’ funds to unlock resources for social and economic development investments.

• Transform and diversify the financial sector – Investigate introducing prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments and job creation while considering the risk.

The socially productive investments include housing, social and economic development infrastructure, and township and village economy.

Davison highlighted that the 2019 mentions of prescribed assets indicated that the party was still considering its merits.

However, the ANC’s 2024 election manifesto states that the part will:

• Engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets.

This means that although it is not government policy yet, the ANC has decided that prescribed assets will be implemented.

Bringing back prescribed assets did not sit well with South African pension funds and asset managers.

Alexander Forbes CEO Dawie de Villiers told Business Day that the local asset management industry does not support prescribed assets.

“Prescription should not happen. We are dead against it and think it will not happen,” De Villiers said.

He said the right way to do it is to make the projects accessible for pension funds by ensuring appropriate governance and suitable risk-adjusted returns are achievable.

Allan Gray strategist Sandy McGregor previously warned that prescribed assets lead to inefficient capital allocation.

He added that a prescribed assets policy will drive away international investment as investing in local assets will result in suboptimal returns.

Sygnia CEO Magda Wierzycka slated the ruling party for trying to dip into retirement savings to fund government projects.

“First, they rob South Africans through taxes. Then, by mismanagement of the economy, the rand collapsed. Now it’s a raid on our retirement savings,” she said.

She added that most South African asset managers already hold over 20% of government bonds, raising the question of what percentage will be enough.

Wierzycka previously said that while prescribed assets will help to fund bankrupt SOEs, they will divert investments away from funding corporations that create jobs and contribute to growing the economy.

“It will also affect the revenue derived from the taxation of such corporates, so what is taken to fill one bucket empties another,” said Wierzycka.