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Unlike the SA equivalent, the Namibian regulation 28 does not offer a window period for correcting any breach of the limits set out by the regulation. It does not recognise the difference between an active breach, i.e. where the asset manager or fund have allowed cash flow to result in the breach of the limit, or a passive breach as the result of  market value movements or portfolio in- or outflows.

When questioned about its position on passive breaches at a recent industry meeting NAMFISA responded rather lapidary that such breaches of regulation 28 limits must be corrected within a reasonable time “to avoid excessive penalties” and encouraged funds to apply for exemption where this happens.

Funds in breach of a limit will thus incur a penalty unless the Registrar in his discretion waives the penalty. It is not clear whether this could imply that a specific breach at a specific point in time is condoned, or that a general exemption is granted for a specified period and whether the exemption will be from the date of the breach or from the date of the application for exemption.

To ‘play safe’ and to avoid having to apply repeatedly , if this is what any exemption granted would require, and to avoid penalties, funds  with segregated portfolios will have to consider instructing their asset manager/s not to operate too closely to the limits. The question is what margin to provide for? Just considering the total offshore exposure, running an exposure of 30% as opposed to the maximum of 35% would only protect against a market movement of 15%, not an exceptional move by any means considering that it can arise as the result of currency movement and/ or local or offshore market movement. Setting a cap that diverges from the portfolio manager’s own view would present a problem where the portfolio manager was given a fully discretionary mandate, as the mandate is immediately not a fully discretionary mandate anymore.

Funds with pooled portfolios face a different challenge as they cannot influence the investment decisions of the portfolio manager yet are still required to apply for exemption in their own capacity in the event of a breach if they want to avoid incurring a penalty –which of course will not be a given considering the discretion of the Regulator.

Unfortunately, as the result of the current regulatory environment, asset managers and funds will for all intents and purposes be obliged to move well below the limits to avoid any penalties, which is not in the interests of members.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

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