The announcement by Finance Minister Trevor Manuel in his national Budget speech last month that there would be an increase in the foreign exposure limits for local pension funds, from 15% to 20%, and a change in the way foreign exchange transactions are monitored, has yet to be put into place.
Bernard Fick, Head of Institutional Business at Prudential Portfolio Managers SA, says that the SA Reserve Bank has issued a circular stating that prior approval of offshore transfers is no longer needed, however the increase in the limit must first be captured into law, through changes to Regulation 28 of the Pension Funds Act.
“We believe this has been drafted, and is currently with National Treasury for their approval,” says Fick. “This process will thus take a little while longer to complete, and will probably be a few months at the most.”
He suspects that any funds exceeding the 15% limit will technically be breaking the law, unless they get special approval from the Reserves Bank and/or SARS, although he doesn’t want to speculate how seriously the old limits will be enforced during this window period.
Fick goes on to says that although this change still has to be implemented, it will positively impact on the way fund managers manage the foreign portion of a retirement fund’s assets, once Regulation 28 of the Pension Funds Act has been amended. While they welcome the increase, there is currently not much scope for additional offshore transfers as most retirement portfolios probably exceed their 15% offshore limit as a result of rand weakness over recent months. He suggests that the relaxation of exchange controls will mean that these funds will not be forced to repatriate their offshore assets in excess of the old 15% limit.
On an intermediary level Fick says that intermediaries should be aware that it is possible that their clients' pension fund assets could shortly hold more offshore exposure. To the extent that they have taken pension fund asset allocation into consideration in their overall financial plan, the latter may need to be reviewed.
On the question of lobbying trustees to get more involved in offshore assets, Fick doesnt think that this would be required. Offshore exposure for pension funds is nothing new, and most (if not nearly all) pension funds will have existing offshore exposure. Consultants and asset managers will be discussing with their clients the pros and cons of increasing the offshore exposure to 20%, where this is possible. Hence I doubt that there will be many trustees who will not be aware, or made aware, of this issue.
What might become more prevalent is for trustees to appoint separate skilled offshore managers, and not simply assume that their local fund manager is equally adept at managing international assets. In his view this separation will not always be a good thing (there are local managers that have superb international offerings wrapped into their global portfolio products), but trustees would be well served by applying their minds to this issue.