Asisa welcomes new 45% foreign investment limit

The Association for Savings and Investment South Africa (Asisa) has welcomed National Treasury’s decision to increase the foreign investment limits to 45%.

Sunette Mulder, a senior policy advisor at Asisa, said although several of its members approached the organisation late last year to canvass National Treasury to review the limits, the announcement in the 2022 Budget speech came as a pleasant surprise.

Read: Pension funds may now invest up to 45% of their capital offshore

“They approached us because many of their products were already at the upper limits. They had to close these products for new investments and clients. The increase therefore gives our members more breathing room, and this is very positive.”

Before the increase, institutional investors could invest a maximum of 30% of their funds offshore and an additional 10% in other African markets.

Under the new dispensation, managers can invest 45% of their portfolios anywhere globally.

It is a significant development as scores of commentators have criticised the 30% limit for investments beyond Africa, since many international markets have outperformed the local market for years.

Interestingly, National Treasury incorporated the 10% allowance for investments in Africa into the 45% overall limit, which suggests the industry had little appetite or opportunity to invest north of the Limpopo.

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“There are just not enough investment opportunities. Although some managers invested in Africa, they rarely utilised the full 10%,” Mulder said.

Mulder also emphasised that the limit increase not only applies to Regulation 28 funds but the whole industry.

“It is across the board, and it is for all retirement funds, insurers, and investment funds. Different limits applied to these industries in the past, and it is good that one harmonised limit now applies to all.”

Discretion of National Treasury

She added that the increase in the limit is not an amendment to a law, which requires a public consultation process. “Such an amendment is at the discretion of Treasury. The same happened in 2018 when they increased the limits, and at the time, it was also a surprise.

“The limits are not hardcoded into Regulation 28. National Treasury refers the change to the Reserve Bank to gazette it [which happened on Thursday last week].”

The new limits came into effect on February 23.

Mulder added that the limit increase is unrelated to the proposed amendment of Regulation 28.

Read: Treasury listens to industry on Regulation 28

“The review of Regulation 28 is a totally different matter and has nothing to do with the offshore limits. The review of Regulation 28 covers possible changes to the industry’s ability to invest in infrastructure investments, hedge funds and crypto assets and follows a comprehensive consultation process with the industry.”

In response to a question on whether the industry may want a higher limit or even a scrapping of the limit in future, Mulder said it will be different for different funds.

“It is a prudential limit. It is more than sufficient for many funds and insufficient for others. It will depend on the profile of the funds.”