South Africa's collective investment scheme (CIS) industry is one of the country's quiet success stories. Over three decades, unit trusts have opened professional investment management to ordinary savers and helped millions build long-term wealth, all under the protective framework of the Collective Investment Schemes Control Act (CISCA) of 2002. [gov.za] But the industry now sits at a crossroads. Two innovations reshaping global asset management, actively managed exchange-traded funds (AMETFs) and tokenised funds, are testing rules that were written for a slower, paper-based world.
By: By: Kristy Jacobs, Client Director at Prescient Investment Management
The rise of active ETFs
ETFs used to mean passive: cheap, transparent index exposure. Not any more. Active ETFs are among the fastest-growing parts of global asset management, and managers such as BlackRock, JPMorgan, Fidelity and T. Rowe Price have embraced them. For the investor, an active ETF and a traditional unit trust are increasingly the same thing in different clothing. The same manager can run an identical strategy in both, but one trades on exchange, settles faster and costs less to hold, so investors gravitate to the more flexible wrapper. In South Africa active ETFs have arrived more slowly than in developed markets, not for lack of demand but because of regulatory complexity and market structure. That raises the central question: should our rules regulate the wrapper, or the investor-protection principles underneath it?
Tokenisation, and why South Africa is ready
Tokenisation is the bigger shift. Instead of units recorded through a transfer agent, an investor holds a cryptographically secured token that represents the same interest in the fund. The economic exposure is identical; only the ownership plumbing changes. BlackRock, Franklin Templeton, JPMorgan and UBS have all launched tokenised products, because a shared ledger takes cost and delay out of settlement, reconciliation and record-keeping. South Africa is well placed to follow, with deep institutional markets, strong custody, advanced payment systems and regulators willing to engage. The FSCA has already declared crypto assets financial products and brought crypto asset service providers under supervision [FSCA], and the Reserve Bank's Project Khokha 2 has tested the tokenised issuance and settlement of debentures on distributed ledger technology [SARB]. The logical next step is to treat a tokenised fund as what it is, a collective investment scheme, where segregation of assets, independent custody, valuation oversight and conduct standards all still apply. Only the register changes.
The rules were built for another era
The obstacle is that CISCA was designed for a different world. It is highly prescriptive about structures, administration and operations [gov.za]. That prescription buys certainty, but it also raises the barrier to innovation: long approval times, several regulators to satisfy, unclear treatment of new technology and little flexibility in how ownership and distribution work. Those costs end up with the investor, and they push managers to innovate offshore rather than at home.
Regulate risk, not technology
The answer is a principles-based regime built on one idea: regulate risk, not technology. Whether a saver buys a unit trust, an active ETF or a tokenised fund, the questions are the same. Are client assets protected? Is disclosure adequate and pricing fair? Is liquidity managed, are conflicts of interest controlled, and is governance sound? If the answers are yes, the delivery mechanism should matter far less. In practice that means legislation defined by economic substance rather than by wrapper; a single framework spanning unit trusts, ETFs and tokenised funds; legal recognition of digital ownership records; faster approval routes and a supervised sandbox for new structures; and alignment with international standards so local products can attract global capital.
None of this is a contest between unit trusts, ETFs and tokenised funds. They are converging, and before long the distinction will be invisible to the people who matter, investors, who care about access, cost, liquidity, transparency and returns. Active ETFs and tokenised funds are going mainstream regardless. The only real question is whether South Africa's rules will move quickly enough for local investors to share fully in the benefits.
Disclaimer:
Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612) in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS).
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