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Q3 2022 - (released November 2022)

SA's quarterly Private Equity & Venture Capital magazine

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Reg 28 amendments offer pension funds clarity and regulatory certainty 

by Elena Ilkova and Kate Rushton 

Regulation 28 (Reg 28) is the regulatory instrument that determines the allocation limits per asset class and per individual asset for local pension funds. 

On 5 July 2022, the final amendments to Regulation 28 of the Pension Funds Act were published as Notice No. 2230 in Government Gazette No. 46649 of 1 July 2022. 

The final amendments are the result of two rounds of consultation during 2021, based on drafts published in February and October 2021. The primary objective of the amendments was to create a regulatory framework that enables investment in infrastructure assets. South Africa’s infrastructure financing needs far outstrip the government’s ability to fund the needed development, and thus private sector participation in building and funding infrastructure is essential. Regulators also took the opportunity to update Reg 28 in several other aspects: a long-overdue separation of private equity and hedge fund investment limits; a prudent introduction of single entity exposure limits across asset classes; a definition (and a prohibition) of crypto assets; and an adjustment of infrastructure-related reporting requirements. 


The amendments to Reg 28 will come into effect on 3 January 2023. 

In our view, the key points in the final amendments are: 

  • Definition of infrastructure: The final amendments took into consideration most of the criticism levelled at earlier drafts by further broadening the definition of infrastructure. Previous references to ownership classification, user types, and physical asset requirements have been dropped. Infrastructure is defined as “any asset that has or operates with a primary objective of developing, constructing and/ or maintaining physical assets and technology structures and systems for the provision of utilities, services or facilities for the economy, businesses, or the public". 

  • Exposure limits: The overall limit of 45% for infrastructure investment across all asset classes was retained, with the specific exclusion of debt issued or guaranteed by the government. The 25% overall limit per issuer/entity across all instrument types was also retained. Within the asset classes, private equity funds have been allocated a separate 15% limit, but no specific allowance has been made for private debt funds. The debt instruments investment limits retain the preference for listed instruments, implying that the 15% limit for other debt not listed on an exchange will have to accommodate both infrastructure and any other forms of private debt. Hedge funds retain a 10% overall limit, but a sub- category in the previous draft that appeared to specifically reference foreign hedge funds has been dropped. 


  • Crypto assets: The published final amendments were unchanged from the previous draft, including the definition of crypto assets and the prohibition of direct or indirect investment by pension funds. 

  • Reporting requirements: The final amendments retain the revision which requires the specific reporting of infrastructure investments within hedge and private equity funds, which are otherwise exempt from look-through exposure reporting. 


The update to Reg 28 is a welcome regulatory action that is long overdue, considering the current version of rules was last updated in March 2011. The developments that have taken place in financial markets over the last decade necessitate regulations to reflect the environment in which pension funds make their current investment decisions. The changes are a reflection of global trends – such as the growth in private markets, particularly private equity as an asset class, the maturity of hedge funds as an alternative asset class, and the more recent rapid rise in the popularity of crypto assets.


Private investment in infrastructure is a global trend too, but it has an additional South African relevance. The decade-long deterioration of both the government’s fiscal position and the financial positions of state- owned entities that traditionally provided infrastructure have left the country with little choice but to deliberately encourage private savings investment in critical developments — the modern infrastructure that is required to enable economic growth. In addition to the urgent need for investment, the increasing awareness of environmental, social and governance (ESG) factors is prompting a reconsideration by pension fund trustees of the long-term sustainability risks to which investments are exposed. 

The Reg 28 amendments provide the certainty needed to encourage private retirement savings funding of infrastructure that is to be provided by both public and private sector entities. The investment limits in Reg 28 are intended to safeguard retirement savings by preventing excessive concentration risk, while still allowing fund trustees to determine investment policy and make investment decisions that take into consideration the needs of each pension funds’ members. 

A comparison of the final amendments with the October 2021 draft highlights the following key differences: 

  • Definition of infrastructure: “‘Infrastructure’ means any asset that has or operates with a primary objective of developing, constructing and/or maintaining physical assets and technology structures and systems for the provision of utilities, services or facilities for the economy, businesses, or the public." In our view, the new broader definition is a significant improvement because it explicitly recognises the stages in the lifecycle of infrastructure (develop/build/maintain), which allows investors to participate at whatever stage they choose. The new definition also recognises that modern infrastructure  is more than physical assets, and that besides traditional public infrastructure, the provision of private infrastructure also enables economic development. In comparison, the earlier draft simply stated that “‘infrastructure’ means any asset class that entails physical assets constructed for the provision of social and economic utilities or benefit for the public”, implying the exclusion of private infrastructure. 

  • Allocation limits: In comparison to earlier drafts, the final version1 has not changed with regards to the limits (overall, per asset class and per issuer), but some of the text descriptions in various categories have been updated to clarify the rand amount limits. The most significant text change is in section 11, which refers to overall limits. In section 11 (a), the previous draft stated that the overall limit includes “exposure in respect of infrastructure in the rest of Africa”. The final version of Table 1 does not include this wording. However, item 11 in Table 2 (which outlines the reporting requirement), does ask for both the percentage and rand value of infrastructure in the rest of Africa, and the total in the same table specifically notes that it should include the ‘rest of Africa’ exposure. 

The updated Reg 28 offers pension funds clarity and regulatory certainty. Within
this context, we believe that the final amendments are a positive development that provides the supportive regulatory framework needed to encourage pension funds to consider investing in alternative asset classes, especially infrastructure. 

Ilkova is a Strategist and Rushton a Credit Analyst at RMB 

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