Financial Sector Transformation Council close to finalising retirement fund BEE scorecard

Transformation in the investment management sector has been slow, and this limits black managers’ participation in the economy. That’s the word from Deputy Minister of Finance, David Masondo. He was speaking last month at a Black Business Council roundtable discussion on transformation in the financial services and asset management sectors.

According to the latest 27four BEE economics Annual Survey, the market share of black asset managers is estimated to be 9% of the total South African savings and investment pool total assets. “This figure shows a disappointing state of affairs in the sector, which requires a deliberate effort from all stakeholders for it to change,” Masondo said. He added that pensions funds, being the primary source of assets, have a key role to play in changing the transformation landscape in the assets management sector as part of the ESG (Environmental, Social and Governance) principle contained in Regulation 28.

“However, access to private sector pension funds for black asset managers has been challenging. This, according to 27four BEE economics Annual Survey, is because of the intermediation of the umbrella funds where the majority of assets are concentrated directly in the asset portfolios managed by the sponsors themselves.

“Not only does this affect transformation in the assets management sector, it also affects the entire value chain, including procurement of support services such as compliance, stockbroking and administration from external service providers.”

The Deputy Minister added that to change the transformation landscape in the sector, the Financial Sector Transformation Council is close to finalising the retirement fund BEE scorecard that will include concrete transformation targets for retirement funds. Among the targets being proposed is a target on pension fund’s procurement of black asset managers’ services.

“Government supports setting of targets as they will fundamentally improve the percentage of assets managed by black managers, thereby improving their participation in the economy. However, it is important that these targets are applied gradually to allow the smooth transition of existing asset management contracts and to avoid disruption of existing investments.”

Masondo noted that, in South Africa, the COVID-19 pandemic had led to a steep economic decline, worsening the already vulnerable economy.

The successful implementation of the Economic Reconstruction and Recovery Plan developed by Government – together with its partners in business, labour and civil society – requires, among others, capital investment into productive and employmentcreating sectors of the economy.

“The pension fund industry with its accumulated assets of around R4.5tn has a significant role to play in this regard. Through its investments in capital markets, the pension funds industry has the ability to stimulate economic activities through better allocation of capital.”

Infrastructure development is identified in the plan as a key area that will play a leading role in South Africa’s economic reconstruction and recovery. “The objective is to pursue infrastructure-led economic reconstruction and recovery with investment in infrastructure that will stimulate the various sectors of the economy,” Masondo added.

“The pension fund industry can play a key role in this regard, by investing more in infrastructure projects that will boost economic development. To create an enabling environment for this to happen, National Treasury is in the process of reviewing Regulation 28 of the Pension Fund Act, to make it easier for pension funds to increase investment in infrastructure, should their board of trustees opt to do so.”

He said that it was important to note that this review was not intended to prescribe which assets the pension funds should invest in, and this decision will remain the responsibility of the boards of trustees.