Backing alternative assets still not so popular

Ingé Lamprecht Moneyweb

While alternative investments tend to offer higher long-term returns than traditional assets like listed equities, bonds and cash, and have a strong social impact, most investors are unable to embrace this asset class.

Unfortunately, there’s only a handful of South African investors large and sophisticated enough to participate in alternative investments, therefore not enough money is going to them, says Chris Roelofse of Stanlib Multi-Manager.

Roelofse says alternative investments are often private, unlisted investments and generally very complex. Investors must know what they are doing and understand what will drive the investment’s value, and that they can’t rely on regulators.

Moreover, if a pension fund decides the job creation and return prospects of a private equity fund are attractive, the fund will likely have to invest a minimum of R50 million to access a single fund with only a handful of investments, and that requires investors to lock up their investment for at least 10 years, making it an extremely illiquid investment.

Even if the fund overcame these obstacles, it’s not as easy as writing a cheque. The investor generally has to commit and hold the money as liquid cash to be able to meet drawdowns as and when the private equity manager requires, Roelofse adds.

“This is just not something that most investors are set up to do,” he says. “It is a hassle, it is complicated and therefore they just never end up executing on the investment because the barriers are just too high.”

The extended equity bull market investors have enjoyed and have also created a degree of complacency. Investors likely reached their medium-term investment targets by allocating a sizeable portion of their portfolio to equities. But listed equity is cyclical which makes it vulnerable to the next market downturn.