South African institutional and retail investors will be allowed to commit up to 10 percent of assets in private equity under new regulations, an increase from the current 2.5 percent allocation.
Regulation 28 of South Africa's Pension Funds Act will allow private pensions and individuals to invest with domestic as well as international private equity firms, according to the South African Venture Capital & Private Equity Association.
The new regulation will be effective from 1 July and could result in a surge in assets under management in the private equity space. There will potentially be billions of dollars up for grabs.
According to National Treasury’s explanatory memorandum, Regulation 28 applies to R1.1 trillion ($167bn) in private pension funds and an additional R1 trillion ($151bn) in assets held in the Government Employee Pension Fund.
Under the Pension Funds Act, the Minister of Finance has the power to make regulations to limit the amount and extent to which pension funds may invest in certain asset classes. The Minister’s decision impacts a massive slice of South Africa’s R5.2 trillion ($790bn) total household savings.
“The aim of retirement fund investment regulation is to ensure that the savings South Africans contributed towards their retirement is invested in a prudent manner that not only protects the retirement fund member, but is channeled in ways that achieve economic development and growth,” according to the Treasury’s web site.