Navigating Regulation 28 reporting challenges

The Regulation 28 component of the Pension Funds Act came about to protect retirement fund investors from the financial ramifications of poorly managed investment portfolios. It stems from the realisation that investments need to be adequately diversified across asset classes to protect retirement fund members from the risks associated with over exposure to high risk investments and complex financial instruments.

Regulation 28 impacts other areas of retirement fund and portfolio management. Reporting obligations, for example, have increased significantly since July 2011. Greater emphasis is placed on both financial and non-financial issues including environmental, social and governance (ESG) integration, trustee education and risk management.

"Proper investment reporting has now become mandatory and issues such as retirement fund and member compliance, investment due diligence and asset allocation transparency must be considered,” says Kevin Milne, head of investment services at Momentum Manager of Managers. "It is very important for investment managers to provide trustees and administrators with the assistance required to generate this level of detail”.

Record keeping, monitoring and reporting systems need to be streamlined in order to ensure optimal data collection. It is also essential that these systems have breach monitoring and compliance certificate generation capabilities. Each of these functions can be overseen by a single, professional investment advisory entity, which makes the appointment of an outsourced multi-manager service a prudent decision.

Online tools that facilitate the generation of daily breach reports and monitor an investment portfolio’s Regulation 28 compliance are necessary for certification purposes. These reports can be extended to include compliance officer recommendations, thereby assisting administrators in addressing identified shortcomings.

Retirement scenario calculators, which establish retirement fund parameters for members’ retirement age, salary increase assumptions and expected portfolio returns, allow trustees to set retirement fund-specific return objectives for a portfolio.

In addition, having access to investment manager information such as investment risk management approaches, fund fact sheets and meeting notes allows for informed investment management choices. "Tools such as these assist trustees in protecting against retirement fund losses and facilitate an appropriate and insightful service,” says Milne.

The next task is that of portfolio construction. Web-based solutions can assist trustees in building portfolios that incorporate a range of manager mandates. It is easier than ever to construct a portfolio that offers an absolute or balanced return and incorporates a range of global and alternative investment options. These solutions are particularly useful as they support portfolio diversification.

Investment management and reporting processes are continually evolving and demand the most up-to-date service provision. By using multi-manager services for their Regulation 28 needs, trustees can benefit from access to the latest compliance and consultation services.

Multi-manager services also ensure that retirement fund members’ money is invested as sensibly as possible. They ensure that invested funds satisfy the Regulation 28 requirements in terms of asset class classification and ease of reporting.

"The multi-manager must ensure that clients adhere to changes made to the environment in which they manage their investments,” concludes Milne. "Advisory and discretionary services which assist trustees in terms of proper asset allocation and, by extension, meeting the investment goals of the retirement fund, are invaluable”.