Prescribed Assets – sense or sensationalism?
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October 21, 2019Prescribed Assets – sense or sensationalism?
Ever since the ANC announced in its 2019 manifesto that it would “Investigate the introduction of prescribed assets on financial institutions’ funds to unlock resources for investments in social and economic development”, there has been a broad swathe of irresponsible hype and sensationalism in the press, sometimes written and said by people who should know better.
It is instructive to look at the facts:
Fact 1
Since the quiet inclusion of the above comment in the manifesto, the ANC itself has hardly mentioned it.
Fact 2
The comment is extremely vague, in the party’s manifesto document, and has gone nowhere near parliament where such a decision would have to be made.
Fact 3
The historical prescribed assets regime did NOT require all retirement funds to invest 53% of their assets in government bonds, as is frequently reported. It required 53% of all NEW cash flows to be invested in a list of prescribed assets which included government bonds, fixed deposits, cash and Krugerrands.
Fact 4
As equities far outperformed bonds in the 1980’s, the split between equities and bonds by MARKET VALUE was closer to 60/40 in favour of equities for funds with a longer history.
Fact 5
As most funds in the late 1980s were defined benefit funds, any opportunity cost of being forced into investing in a possibly underperforming asset was actually a “tax” on the employer who had to ensure the soundness of the fund.
Fact 6
There has been absolutely no mention of the proposed level of prescribed assets, how broad the list of prescribed assets might be, the “grandfathering” of existing assets, the timing of the introduction of prescribed assets or the implementation of any such policy.
Fact 7
If some form of prescribed assets had been in place for the last 3 years, the All Bond Index would have produced an aggregate return of 26%, Money Market 24%, the JSE All Share Index (total return) 12% and listed Property -13%!
Fact 8
Since most retirement funds are now defined contribution funds an obligation to invest in assets that may underperform is now a direct tax on the members of those funds in the form of reduced long-term returns.
Fact 9
Prescribed assets are a blunt way of raising funds for government as most government bonds are traded on the secondary market between third party investors and not on the primary market where the capital raising happens.
Fact 10
Approximately 50% of South African government bonds are held by foreigners which means, at least from their perspective, they are attractive and safe investments.
Fact 11
The Chief Executive of the Eskom Pension and Provident Funds has come out against prescribed assets.
So, until, the issue of prescribed assets, with some of the above-mentioned lacking detail clarified, is introduced to Parliament where it is likely to be met with vehement opposition by lobby groups from the industry, organised labour and business, probably matched with legal challenges all the way up to the Constitutional Court, it is pointless and possibly irresponsible to create worry and tension about something that may never actually happen.
Opinion 1
Is it possible that the whole issue was included in the manifesto simply to snatch it away from any other more populist parties who might have used it as an electoral weapon?
