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Why 'prescribed assets' is (mostly) a terrible idea – Magda Wierzycka (Sygnia)

15 January 2019 7:38 PM
Tags:
ANC election manifesto
The Money Show
Bruce Whitfield
SOEs
Sygnia
Magda Wierzycka
Sygnia Asset Management
state owned companies
prescribed assets

Bruce Whitfield interviews Wierzycka about the ANC’s flirtation with forcing pension funds to invest in ailing SOEs such as Eskom.
Sygnia CEO Magda Wierzycka. Picture: @Magda_Wierzycka/Twitter.

Sygnia Asset Management CEO Magda Wierzycka on Tuesday reacted to the ANC election manifesto in which it says it’s looking into “prescribed assets” (i.e. forcing pension funds to invest in state-owned companies).

Wierzycka’s comments on prescribed assets (shortened for clarity):

The ANC’s 2019 Election Manifesto contained a statement that the ANC would investigate the introduction of prescribed assets on financial institutions’ funds.

This has been interpreted as the return of the National Party’s prescribed assets regime, which ended in 1989.

Under the old regulation, fund managers had to invest 53% of a retirement fund’s assets in parastatal and government bonds, leaving only 47% to be invested in “growth assets” such as equities.

No offshore investments were permitted.

Much has changed since then.

Defined-benefit arrangements (which guaranteed a salary comparative to the final salary at retirement) made way for defined-contributions, shifting the investment risk from companies and the state to individual investors.

Before, individual members did not have a direct vested interest in how the assets were invested, and they were also not represented on the boards of trustees.

Now, under defined-contribution arrangements, the assets that a member saves and invests determines the amount of their final pension benefit.

The introduction of prescribed-assets requirements in the current environment may well encounter resistance, and even court challenges, from members and trade unions that take an active interest in the investments of funds that fall under their auspices.

On the other hand, government may well argue that since retirement funds enjoy tax breaks, it should have a say over how the money is invested.

If such an eventuality should take place, existing funds may demand “grandfathering” of existing investment strategies (i.e. a demand that savings to date are not affected by the new provision).

Going forward, members may opt out of retirement funds altogether and choose to save directly, which could ultimately result in insufficient savings down the line.

Prescribed assets are a blunt instrument that can fill the immediate gap in the funding of bankrupt SOEs but will also divert investments away from the funding of corporates 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.

The problem is not an unwillingness on the part of the asset management industry to participate so much as it is a dire shortage of such projects and a complete lack of trust that the money will not be wasted for other purposes.

If one is to consider deploying retirement fund savings, I would rather see the Government Employees Pension Fund’s (GEPF) assets being deployed.

The GEPF is a defined benefit pension fund, and the liability to pay public servants’ pensions is a liability on all South African taxpayers.

We have seen enormous destruction within that pool of wealth by nefarious characters, so instead of punishing the general public for the sins of the past, it would be more constructive to put the GEPF’s assets to good use.

This would require a complete clean-up of the PIC.

The Money Show’s Bruce Whitfield interviewed Wierzycka.

Listen to the interview in the audio below.

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15 January 2019 7:38 PM
Tags:
ANC election manifesto
The Money Show
Bruce Whitfield
SOEs
Sygnia
Magda Wierzycka
Sygnia Asset Management
state owned companies
prescribed assets

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