This year, the JSE saw a poor performance. As a result, the idea of alternative investing has become attractive to investors. Such investments in venture capital, hedge funds, infrastructure, private equity and unlisted property have increased. In some instances, these types of assets have outperformed other kinds of equities to an impressive extent.
South Africa and Alternative Investing
In South Africa, however, alternative investments are difficult due to their inaccessibility. In addition, private investors have fewer options as well. Regulatory changes have made it possible to acquire better investments in alternative assets, but they are increasingly pricey. Among the options that are available are hedge funds and capital funds. Both of those are tax deductible.
Things changed for the better with alternative investing in 2011. At the time, the Pension Funds Act raised the rate for this type of investing from 2.5 to 15 percent. This rate applied to individual investors for their retirement funds in an indirect manner, as well as for fund managers. At the same time, the head of multi-strategy at Sanlam Alternative Investments, Pawan Singh, states that, on average, most allocations through these investments is under two percent but is at around 30 percent in Europe and the United States.
Alternative Investing Challenges
Singh added that South Africa has a low participation rate in the area of alternative investing and cites lack of education on the topic as the chief reason.
The CEO of Old Mutual Alternative Investments, Paul Boynton, claims that, in the US and Europe, alternative investing is gaining steam and has a 10 percent allocation in comparison to hedge funds and real estate. In the US, these allocations are headed by the endowment sector. The permanent capital within such assets is similar to that of pension funds. By contrast, in South Africa, it’s a very different story as trustees are not quite as willing to allocate alternative investments. This has resulted in the country lagging behind in alternative assets.
However, Boyton expressed optimism and said that things were changing for the better in South Africa. He pointed out that there have been improvements and increases in both funds and advisers, which can increase alternative investing in the country.
Alternative Investment Options
George Tsinosis, head of investment analytics at RisCura, said that he sees everything not connected to fixed income, cash and broader equity as examples of alternative investments. At the same time, he believes only hedge funds are appropriate for new investors.
Singh added that, due to alternative investments lacking liquidity, many retail investors have very little view of alternative investing and that there is limited knowledge in this area. He says this is especially the case for investments involving property, private equity and private debt.
Tsinosis says that, at the end of the day, investors in South Africa should look toward hedge funds in terms of their alternative investing. He points out that, although these funds showed a poor performance in recent years, they are now flourishing.
Although much of alternative investing is still very new to individual investors in South Africa, the country can expect better things on the horizon in that sector.