Fund managers win the right to go 100% offshore, and the JSE says R10 trillion could follow

South African fund managers would be able to hold 100% of a portfolio in foreign assets under ring-fenced mandates, escaping a 45% offshore investment cap that has shaped local portfolios for years.

The change sits inside the draft Synthetic Financial Centre framework, published on Wednesday and briefed to investors on Friday by the South African Reserve Bank, National Treasury and the Johannesburg Stock Exchange. As Sunday World reported on 23 October, the framework would let licensed asset managers, banks, insurers and private equity firms manage global portfolios in any currency from a South African base.

The detail that matters is where the cap still bites. An institution committing capital to an SFC vehicle remains bound by the 45% limit at the point of commitment, and the money still counts towards that institution’s own prudential foreign exposure. Once the funds are inside a registered mandate, the manager can invest them entirely offshore.

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

JSE chief executive Valdene Reddy said the framework “really positions South Africa with a framework that makes it competitive”.

The money at stake is not small. Close to R5 trillion in South African portfolio assets is already held offshore, much of it routed through overseas centres because local rules made it difficult to run a fully global portfolio out of Johannesburg. The JSE estimates the wider overhaul of exchange controls could draw R10 trillion in investment over time.

That figure is the exchange’s estimate and belongs to the exchange. It is not a forecast the regulators have adopted.

Nor is the 45% cap on its way out. Olano Makhubela, head of the Reserve Bank’s Financial Surveillance Department, said the prudential limit would remain a “long-term feature” of South Africa’s capital-flow framework. The draft does not scrap the cap. It carves out a route around it for money that has already been committed to a registered vehicle.

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

The draft is open for public comment until November 30. For a South African saver, the practical effect is indirect but real. A local manager running a global mandate from Johannesburg would no longer need an offshore structure to do it, which bears on where the fees, the administration and the decisions sit. Whether that shows up in the cost of a fund is a question the comment period is there to test.

For the institutions, the sequencing is what to watch. The cap governs the institution committing the capital. The mandate governs the manager spending it. The framework keeps those two things apart on purpose, and the comment period running to the end of November is where that split will be argued over.