Prescribed assets ‘not the solution’ to transformation

The newly constituted Financial Sector Transformation Council (FSTC) has come out against calls for government to accelerate the pace of transformation in the asset management industry through the reintroduction of prescribed assets.

Often mooted as a way to achieve developmental goals, prescribed assets involve compelling pension funds to invest a certain – prescribed – portion of their funds in investments predetermined by government, such as black-owned firms, government bonds or bonds issued by state-owned enterprises.

“As a sector we don’t support the prescribed assets,” says FSTC CEO Isaac Ramputa. “We believe that holistically, when we work together through collaboration, we can achieve more.”

The FSTC (previously the Financial Sector Charter Council) on Wednesday announced that it has broadened its mandate and assigned the most senior leaders of its constituents to strategically drive the sector’s black empowerment goals. The Amended Financial Sector Code came into effect on December 1, 2017.

Ramputa says the issue of prescribed assets is not a new debate. South Africa had prescribed assets during the apartheid era, but this did not offer a solution.

Leon Campher, CEO of the Association for Savings and Investment South Africa (Asisa), says in the apartheid regime, prescribed assets “messed” with markets.

Reintroducing prescribed assets – together with some of South Africa’s other issues – would lead to a flight of foreign capital, he says. Foreigners are significant investors in listed South African companies.

Having started an asset management business himself, Campher says he would like to see everybody succeed, whether they are black or not. Personally, however, he believes there are too many asset managers and not all of them will be able to succeed.  

Campher says in principle Asisa has decided to provide black managers with “shelf space” through linked investment service providers (Lisps), multi-managers and umbrellas, but because of competition concerns, the business decision sits with individual members.

Amid concerns that the Amended Financial Sector Code does not go far enough to enforce compliance – and is therefore practically no different from its voluntary predecessor, the Financial Sector Charter – Trevor Chandler, chair of the reporting working committee of the council, says that where firms tender for business, their empowerment status plays an important role in decision-making.

“You’ve got this ecosystem that has made the BEE scorecard something that is very important to the individual institution. If you don’t comply, you will commercially suffer. That is the reality.”

But it is not only about the code itself exisiting in legislation, Chandler says. The whole “regulatory ecosystem” needs to be considered. The Insurance Act references the Financial Sector Code itself, potentially creating a link between compliance and licensing going forward.

“That will extend beyond the Insurance Act, we are told by the regulators.”

The expanded mandate of the council aims to provide greater strategic direction to the financial sector on transformation and development initiatives that support inclusive economic growth and job creation. These include the funding and implementation of transformational infrastructure projects; the funding and development of black business and black industrialists; support for black businesses through enterprise development, supplier development and preferential procurement; public-private partnership projects to fund higher education; and support of initiatives focused on increasing financial inclusion and consumer financial literacy levels.

The first Financial Sector Transformation Scorecard against the Amended Financial Sector Code is expected to be finalised by April 2019.