Sygnia chief executive Magda Wierzycka says that a group of large asset managers are to blame for Treasury’s decision to backtrack on allowing a higher ratio of offshore investments for pension funds.
The issue relates to Regulation 28 of the Pension Funds Act, which is aimed at protecting individuals’ retirement savings through responsible fund management.
Regulation 28 stipulates how pension money can be invested by limiting equities to 75%, listed property to 25%, and offshore exposure to 30%.
It was therefore welcomed when an explanatory note linked to the finance minister Tito Mboweni’s mid-term budget speech stated some inward listings of international instruments would be classified as domestic.
However, Treasury issued a circular this week in which it effectively made a U-turn on the announcement, casting doubt on whether any changes will be made to the existing regime.
Wierzycka said that a handful of members of ASISA, a lobbying body purporting to represent all asset managers, wrote to the FSCA, National Treasury and SARB demanding the suspension of the recent circular.
“Their reason, not backed up by independent legal opinion and merely referencing ‘our view’, was that it conflicted with Regulation 28,” she said.
Wierzycka said that Sygnia had already obtained independent legal opinion from a top pension funds lawyer which confirmed that there was in fact no such conflict and that the legal effect of the circular on Regulation 28 was clear.
She said that ASISA did not consult all of its members regarding the circular – despite professing to represent the industry with ‘one voice’.
“Sygnia is in the process of establishing who the authors of ‘our view’ were, but it appears that these were primarily large asset managers including Coronation and Ninety One.”
Wierzycka said that Sygnia, which is a member of ASISA, was neither consulted nor informed of the letter and its contents.
“Basically a handful of large asset managers who control the wealth of most South African investors have seemingly appointed themselves the custodians of all decisions relating to foreign investments, thereby disempowering the boards of trustees, actuaries, investment consultants, financial advisers, and average South Africans from making the decisions the very legislation they reference bestowed upon them,” she said.
“It is not up to asset managers to determine the degree of foreign exposure appropriate for a particular investor: asset managers do not have insight into their clients’ liabilities, and it is up to an individual or board of trustees, supported by advisors who can help devise a customised strategy for each investor based on their circumstances, to do so.
“To claim that power for fund managers alone is the height of arrogance, as is the pressure applied to the SARB to reverse its earlier decision.”
Business at risk
Wierzycka told eNCA that the relaxation of foreign exchange controls allow investors to diversify their investment strategies in a low-cost manner using index tracking funds.
“From the perspective of an active asset manager this is ostensibly a disaster,” she said.
“Where ETFs charge low management fees for their market certain returns, active managers charge high fees for the possibility of outperforming the market.”
“Active asset managers cannot launch these products, as it would be seen as an acknowledgement of the failure of active management.”
If investors take more money offshore using ETFs, that money is likely to flow from the domestic portion of their savings, which is mostly managed by active asset managers, she said.
Before the SARB and National Treasury backtracked on the circular, Wierzycka predicted that no active asset manager will celebrate the declaration.
The SARB is currently soliciting comment as part of their review process of ETFs referencing foreign assets.
“Sygnia will be providing a comprehensive comment as to why the Circular is in the best interests of SA investors and South Africa,” Wierzycka said.