Just how much could local pension fund members lose out if the government went ahead with a prescribed assets push?
A lot, as it turns out.
Isaah Mhlanga, executive chief economist at Alexander Forbes Investment, says there was a huge opportunity cost in the prescribed assets regime between 1956 and 1989.
Back then, the apartheid government forced retirement funds to invest 53% of retirement funds assets in sovereign or parastatal bonds, along with 33% of life companies and 75% of Public Debt Commissioners’ (now known as the Public Investment Corp, or PIC) money.
He says that at the system’s worst, in the 1970s, prescribed assets gave an annual return four percentage points below inflation and 17.2% behind equities.
Sandy McGregor, the veteran group strategist at Allan Gray, considers prescribed assets to be a solution in search of a problem.
He knows from the years he worked under the prescribed assets regime that it leads to an inefficient allocation of capital. "The main problem in SA is a lack of savings, and I can promise you it won’t fix that."
McGregor adds that international investment will dry up if prescribed assets are introduced, as investors will have the choice not to invest in local assets offering suboptimal returns.
During apartheid, there was little international investment to worry about, and local institutions could not invest overseas.
It may be fair to say that pension funds and unit trusts don’t invest enough into direct social and economic development projects.
But almost no-one canvassed by the FM believes that prescribed assets is the way to change this.
Even the ANC’s closest ally, trade union federation Cosatu, is sceptical — especially given the unfolding debacle of dicey investments made by the PIC.
In its 2019 election manifesto, the ANC promised to investigate the introduction of prescribed assets to mobilise money from financial institutions for "socially productive assets".
But trustees and fund managers have a fiduciary responsibility to their clients which supersedes all other obligations, says Neville Chester, a senior portfolio manager at Coronation Fund Managers.
After all, the money managed by Coronation and its peers does not belong to them but to members of the public, many of whom are struggling to build up a decent pension.
Chester says good returns and social good can often go together, but there is a limited pool of fully liquid (listed) development assets. "Our clients can all leave us with 24 hours’ notice, so we cannot commit ourselves to 30-year investments."
