South Africa Pension Funds Neglecting Private Equity Investments

Johannesburg, South Africa, Capital Markets in Africa — South African pension funds have mostly ignored investing in private equity because trustees aren’t familiar with the asset class despite rule changes five years ago allowing larger investments, according to bodies representing both parts of the industry.

About 2.3 percent of the country’s $234 billion retirement pool in 2014 was invested in private equity, the Southern Africa Venture Capital and Private Equity Association said in a report on Tuesday, citing London-based Willis Towers Watson Plc and Cape Town-based RisCura Solutions (Pty) Ltd. The global average is 5.1 percent, according to the Coller Institute of Venture at Tel Aviv University.

South Africa increased the amount that pensions can invest in alternative assets to 15 percent from 2.25 percent, including as much as 10 percent in private equity. Money managers still need more education even after regulators boosted oversight of hedge funds last year to further spur investment, according to Anne-Marie D’Alton, chief executive officer of the Council for Retirement Funds of South Africa.

Pensions should study the benefits of private-equity investments, such as those funding solar power, D’Alton, whose group represents the country’s 350 pension funds, told reporters in Johannesburg on Tuesday. Private-equity returns over the past 10 years averaged 22 percent net of fees, compared with 17 percent for the JSE All Share Index, the SAVCA report showed.

Concerns about private equity’s liquidity are misplaced because pensions have even longer-term horizons and the direct management of assets reduces risk when compared to a listed company, SAVCA chairman David Stadler said.

Source: Bloomberg