Financial services board publishes draft conditions for pension fund investments in hedge funds

Pension fund conditions
08 Jan 2016

Pension funds have until 29 January 2016 to comment on the draft conditions that have been published by the Registrar of Pension Funds regarding pension fund investments into hedge funds. This is according to a Bowman Gilfillan Africa Group senior associate in the Banking and Financial Services Regulatory practice area, Naticia Chetty.

Chetty explains that these draft conditions were published on 19 November 2015 following developments early in 2015, including the Minister of Finance publishing a notice declaring the business of a hedge fund to be a collective investment scheme to which the prescribed provisions of the Collective Investment Schemes Control Act, 2002 (CISCA) apply; and the Registrar of Collective Investment Schemes publishing a notice setting out the requirements for hedge funds.

Chetty says that in terms of the new draft conditions, pension funds may only invest in a hedge fund which is administered by a manager registered under CISCA. Also, pension funds investing in hedge funds are still bound by the asset spreading requirements and limits referred to in regulations to the Pension Funds Act, 1956 (PFA).

Pension funds investing in hedge funds must also monitor compliance by the manager with the notice published by the Registrar of Collective Investment Schemes; and where a pension fund invests in a qualified investor hedge fund, the pension fund must ensure that the manager of the qualified investor hedge fund complies with the relevant sections of the notice relating to the inclusion of derivatives in a portfolio.

“The draft conditions also provide for transitional arrangements with respect to pension funds currently invested in hedge funds whose managers have not been registered as managers of collective investment schemes. The transitional arrangements place various obligations on the pension fund such as monitoring compliance by the manager of the hedge fund with any time periods and other conditions determined by the Registrar of Collective Investment Schemes for the application as a registered manager under CISCA,” explains Chetty.

“The explanatory memorandum issued together with the draft conditions states that despite the declaration of a hedge fund as a collective investment scheme, any investment by a pension fund in a hedge fund is regarded as an investment in a hedge fund as defined in the regulations to the PFA. As such, any direct or indirect exposure to a hedge fund must be disclosed by the pension fund as an investment into a hedge fund and the pension fund need not apply the look-through principle in respect of the underlying assets of a hedge fund,” Chetty adds.

The draft conditions are open for public comment and queries until 29 January 2016. These should be sent to [email protected]

See also: No tax relief for hedge funds?

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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