South Africa to allow 100% offshore investment under new financial centre framework

Fund managers will be able to hold 100% of portfolios in foreign assets under ring-fenced mandates, regulators said on Friday, in a new framework that exempts qualifying vehicles from a long-standing 45% offshore investment cap.

The South African Reserve Bank, National Treasury and the Johannesburg Stock Exchange briefed investors on the draft Synthetic Financial Centre (SFC) framework, published on Wednesday, which would allow licensed asset managers, banks, insurers and private equity firms to manage global portfolios in any currency from a South African base.

The 45% limit would still apply when an institution commits capital to an SFC vehicle. But once the funds are inside a registered mandate, the manager could invest them entirely offshore. The originating institution would still count the investment towards its own prudential foreign limit.

Stuart Theobald, executive chairperson of Krutham, a think tank, and convenor of Operation Phumelela, a private sector initiative led by the JSE to boost the competitiveness of South Africa’s financial sector, called the lifting of the cap “the most fundamental change” in the framework.

Close to R5-trillion ($301-billion) in local portfolio assets are held offshore, much of it routed via overseas centres because local rules have made it difficult to manage fully global portfolios from Johannesburg.

“The SFC really positions South Africa with a framework that makes it competitive,” JSE CEO Valdene Reddy said.

The framework is part of a sweeping overhaul of South Africa’s decades-old exchange controls that the JSE estimates could attract 10 trillion rand in investment over time.

Olano Makhubela, head of the SARB’s Financial Surveillance Department, said the 45% prudential limit would remain a “long-term feature” of South Africa’s capital-flow framework.

Vukile Davidson, chief director of financial markets and stability at National Treasury, said a second phase could consider tax alignment and could allow foreign-currency listings on South African exchanges. – Reuters