A WEE DRAM
CHRIS GILMOUR: Regressive prescribed asset requirements have no place in a free market
Most private sector observers are wary about this pillar of the ANC manifesto as it could have a catastrophic effect on the performance and risk profile of pension funds
Prescribed asset requirements (PARs) are being seriously considered by the ANC government in its election manifesto, intended to provide it with funds for future infrastructural development. This means forcing pension funds to invest in infrastructure projects such as low-cost housing and water reticulation. Most private sector observers regard this as an especially unhelpful suggestion as it could have a catastrophic effect on the performance and risk profile of pension funds. Fixed-income returns usually lag equity performance, and if portfolios are compelled to invest a greater component into this asset class, total returns should regrettably fall. Destinations for PAR money are of huge concern, as the government’s disastrous track record of running infrastructure projects — such as those contained in Eskom, Transnet and the various water boards — hardly fills one with optimism. PARs were apparent in SA in the dying days of apartheid. Faced with the enormous costs of fighting a r...