THE pension and asset management industry in SA has criticised a controversial government plan, due to be discussed at the African National Congress (ANC) policy conference starting tomorrow, to push private pension and life assurance money into state enterprises and development finance instruments.

Leading professionals and regulatory experts said at the weekend such a move would be highly inappropriate if it had the effect of making pension funds instruments of state policy, and opened the door to poor returns and misdirection of funds.

Over four days, the ANC will discuss 13 policy documents, two of them on the use of targeted investment to help fund infrastructure and social initiatives.

"That is not what pension funds are there to do - they are vehicles for people's savings," said Andrew Canter, Futuregrowth's chief investment officer.

"The reality is government shouldn't be telling people where to bank, which supermarket to use, or what pension funds they should invest in."

Business Day has established that at least one leading asset manager has called a high-level meeting for this week to discuss how best to deal with any fallout and to communicate the potential harm of such a move.

Ryan van Breda, a risk management and portfolio compliance specialist at Prescient Investment Management, said if the government had to prescribe in this way, it would cause international investors to consider withdrawing significant investments.

This comes as reports said Namibia would give its finance minister the power to prescribe how much pension money should go into unlisted assets and greenfield projects. "It will only suck the liquidity out of the Namibian market," Mr van Breda said.

A battle may be looming within the ANC, with leftists hoping to have the policy ratified at December's elective conference.

The Treasury said any targeted investment for funds should not come at the expense of pension returns. Tax and financial sector policy deputy director-general Ismail Momoniat said while it was important to find solutions for the long-term funding of the R3,2-trillion infrastructure initiatives, "you don't want a situation where pension holders don't perceive investments are giving a high enough return - then they won't save".

Mr Canter called it a "myth" that the infrastructure spending pipeline cannot be funded by existing channels and that pensions needed to be forced into buying development finance instruments. Transnet was already generating enough cash flow to reinvest in capital projects, while Eskom had procured 75% of its budgeted funding needs for 2012 to 2018.

"Throwing money at this will create a financial mess, distortion, and inexperienced people will be opportunistically setting up investment businesses, which they don't have the skill to run.

"There is no shortage of money in SA, only a shortage of skills for delivery," he said.

Carla Letchman, the Financial Planning Institute's technical research analyst, said that in late 2010, Economic Development Minister Ebrahim Patel's development bond idea seemed "very novel" and there was not enough time for experts to get their heads around the plan, or for industry to be properly consulted. Eventually it was not included in the regulation 28 changes. These new rules, introduced at the end of last year, determine the amounts pension funds can invest in different asset classes.