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Introducing asset classes per regulation 28

Preamble to Regulation 28

“A fund has a fiduciary duty to act in the best interest of its members whose benefits depend on the responsible management of fund assets. This duty supports the adoption of a responsible investment approach deploying capital into markets that will earn adequate risk-adjusted returns suitable for the fund’s specific member profile, liquidity needs and liabilities. Prudent investing should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character. This concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment.”


The preamble highlights the fiduciary responsibility of a retirement fund’s board to invest members’ savings in a way that promotes the long-term sustainability of the asset values when taking into account environmental, social and governance (ESG) issues. Read together with the principles, the preamble serves as a guide to trustees to consider what investment strategy would be appropriate for the specific nature and obligations of their fund. Recognition is given to the fact that an overly conservative investment strategy (dominated for example by cash and non-inflation linked bonds) can be as damaging to long-term savings as one that is overly exposed to perceived risky assets.

The following asset classes form the building blocks for creating a retirement fund’s diversified investment portfolio, with each asset class having distinct risk and return expectations. The Principles contained in Regulation 28 are to be applied by the board of a fund before it makes any new investment or change to its investment portfolio.

The typical assets classes available for investment by retirement funds:

  • Cash, which includes:

Notes and coins;
Any balance or deposit in an account held with a South African bank;

A money market instrument issued by a South African bank, including an Islamic liquidity management financial instrument;

Any positive net balance in a margin account with an exchange; and

Any positive net balance in a settlement account with an exchange, operated for the buying and selling of assets.


  • Debt instruments (including Islamic debt instruments), which include:

Debt instruments issued by or guaranteed by the Republic;

Debt instruments issued by a foreign country;

Debt instruments issued or guaranteed by a South African bank against its balance sheet;

Debt instruments listed and not listed on an exchange; and

Debt instruments issued or guaranteed by an entity that is listed on an exchange. The investment limits are in accordance with the market capitalisation of the listed entity.


  • Equities (South African and foreign), which include: preference and ordinary shares in companies, excluding shares in property companies, listed on an exchange. Limits are imposed relative to the market capitalisation of the issuer. There is also a limit on the amount that may be invested in preference shares and ordinary shares not listed on an exchange.


  • Immovable property (South African and foreign), which include: preference shares, ordinary shares and linked units comprising shares linked to debentures in property companies, or units in a collective investment scheme in property, listed on an exchange.
    The limits are in line with the market capitalisation of the company.


  • Commodities (South African and foreign), which include:
    Kruger Rands and other commodities listed on an exchange, including exchange-traded commodities. Gold exposure can be more than other commodities.


  • An investment in the business of a participating employer in terms of section 19(4) of the Pension Funds Act.


  • Housing loans granted to members in accordance with provisions of section 19(5) of the Act.


  • Hedge funds, private equity funds. There are limits on funds operating in South Africa and in foreign countries. In addition, exposure per fund is limited.


  • Other assets not included in this schedule. Retirement funds are limited to an exposure of 2.5%.


Typically, fund managers would sub-divide these Regulation 28 defined asset classes further:

  • Cash: local and foreign; and
  • Equities: domestic and foreign industrial, domestic and foreign resources, domestic and foreign financials;
  • Bonds: long bonds, medium-term bonds, short-term bonds, government, parastatal (such as Eskom and Transnet) and commercial paper;
  • Property, which is invested in sub-groupings whose fundamentals are not driven entirely by the same factors. A distinction is made between retail, industrial and commercial property. Further, a prudent regional spread is sought and concentration risk is avoided.


For each asset class, there would typically be a strategy pertaining to each sub-group such as:

  • Overweight: a tactical recommendation to hold more of the asset class than specified in the strategic asset allocation.
  • Neutral: a tactical recommendation to hold the asset class in line with its weight in the strategic asset allocation.
  • Underweight: a tactical recommendation to hold less of the asset class than specified in the strategic asset allocation.


*Part 2 of this series will explain each asset class in more detail.



  1. National Treasury, [Online] Available:
  2. FSCA, [Online] Available: Entities/Pages/UI-Retirement-Fund.aspx


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