Pension Fund Forum Africa Presentation: Re-analysing Regulation 28: 12 Months Later – How Has It Changed the Playing Field Speaker: Jonathan Mort Company: Jonathan Mort Incorporated, Cape Town Date: 27 November 2012

Background Old Regulation 28 promulgated on 28 Jan 1962 and minor changes made until new Reg 28 promulgated. New Reg 28 promulgated on 4 March 2011 in force from #.

How is the New Reg 28 Different? Preamble: “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 to 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.” (emphasis added)

How is the New Reg 28 Different? (cont) 9 Principles – Promote trustee education Monitor Reg 28 compliance by advisors and service providers Consider BEE of service providers Ensure fund assets are appropriate for its liabilities When investing, do risk assessment for credit, market and liquidity With foreign investments, consider currency and country risks Do not consider only credit ratings Understand changing risk profile of assets over time Consider ESG factors (6 principles relate to risk management)

How is the New Reg 28 Different? (cont) New quantitative limits D Look through Reporting

How is the New Reg 28 Different? (cont) Additional Requirements through Board Notices : Private equity Derivatives Scrip lending

Problems D

What are the Important Changes for a Board from Reg. 28? Importance of proper investment education for the board Revision of IPS to incorporate Reg 28 principles Selection of asset managers who are compliant with Reg 28 principles Greater need for investment consultants with skills in Reg 28 principles Emphasis on – Management of risk Assets appropriate for member profile Sustainable long term investments incorporating ESG factors, no longer to be seen as optional and separate asset class

What Lies Ahead for Pension Funds? Not only boards but asset managers, need to adapt Challenge will be containing costs : Asset manager fees may come under pressure Note increase regulatory supervision of market conduct: Board fulfilling its duties Asset managers acting appropriately Greater oversight on investment issues by Regulator. May see investment compliance visits? Minimum board fit and proper requirements? Great impetus to consolidate pension funds

Thank You.