ALLAN GREENBLO: Regulation 28 collision course
The sovereign-debt downgrades turn regulation 28 into a Catch-22. If funds comply, they’ll be damned. If they don’t, they’ll be damned anyway
The expedient of “prescribed assets” again looms. Institutional investors are between a rock and a hard place. Government might have to change the rules so that it can limit their fiduciary discretion and poach from long-term savings. SA retirement funds face a quandary. It’s implicit in regulation 28 of the Pension Funds Act that sets out their prudential requirements for making and remaining in an investment. There lies the rub. The sovereign-debt downgrades turn regulation 28 into a Catch-22. If funds comply, they stand to be damned in one way. If they don’t, they stand to be damned in another. A fund’s entire portfolio can comprise investment in fixed-interest bonds issued or backed by the SA government. Funds aren’t obliged to invest in them, but unexceptionally they do as part and parcel of asset diversification. Where the bonds have been downgraded to junk, which reflects a heightened risk of default, regulation 28 only matters in so far as funds “may” take credit ratings int...
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