Malusi Gigaba. Picture: BUSINESS DAY
Malusi Gigaba. Picture: BUSINESS DAY

The Treasury is to increase the prudential limits on offshore investments for funds under management by institutional investors, by five percentage points for all categories, including the allowance for investments in Africa.

The limits for collective investment schemes, investment managers and long-term insurers will rise from 35% to 40%, and for non-linked long term insurers and retirement funds from 25% to 30%.

An additional allowance is available to all institutional investors for investment in Africa and this is increased from 5% to 10%.

Treasury chief director for financial markets and stability Roy Havemann noted that the last significant increase in the allowance for foreign investment by domestic funds was in 2010.

He said most institutional investors had not yet reached the current limit.

The Treasury did not fear a large outflow of funds as a result of the increase in the limits, Havemann said, given the big inflows into the JSE currently.

“Diversification allows savers to benefit from investing in a wider range of asset classes as well as jurisdictions that might be yielding higher returns, while at the same time minimising the risk of capital loss from failures in a single asset class or jurisdiction,” Havemann said.

“Moreover, strict limits on institutional investors may lead to distortions in investment allocations, particularly in view of the large number of inward listings and rand-hedge stocks. Recent buoyant conditions in South African financial markets allow some room to raise the allocation, while balancing the need to ensure that vulnerable pensioners are not overexposed to volatile global markets.”

The limit for so-called holding companies has also been increased. Transfers to holding entities will be increased from R2bn to R3bn for listed entities and from R1bn to R2bn for unlisted companies, both subject to Reserve Bank reporting requirements. The aim of the holding company regime is to facilitate direct investment by South African companies into Africa from a domestic base.

Havemann said the holding company regime had been a “success story”. Since its inception in 2013, a total of 45 holding companies had been registered by the Reserve Bank. Out of this, 26 are listed companies while 19 are holding companies of unlisted companies.

The Treasury has also given notice that it will release a paper later in 2018 on a proposed policy framework for the review and approval of complex cross-border transactions.