Global alternatives:
building portfolio resilience

You can watch the full interview here, or read the edited highlights below.

What are alternative investments?

Alternative investments are essentially investments that fall outside the traditional asset classes of listed equities, bonds and cash. It’s a broad category that includes private equity, private credit, hedge funds, infrastructure, certain commodity strategies and even structured products.

People also sometimes include collectibles such as art, classic cars, luxury watches, whisky and fine wine – rare whisky, for example, has delivered exceptionally strong returns. However, these markets require specialist understanding. Investing simply because an asset has performed well for others can easily lead to poor investment decisions. Collectibles are generally regarded as a separate category of alternative investments.

Why have alternative investments traditionally been difficult to access?

Historically, alternative investments were developed primarily for large institutional investors, such as university endowments and pension funds. The nature of these investments often makes them less accessible to retail investors.

Private equity, for example, involves ownership in privately held businesses. Unlike listed shares, there is no public market where investors can easily buy or sell their holdings. Investments are typically locked in for many years, requiring investors to commit long-term capital.

While the industry is working to broaden access to private markets, this needs to be done responsibly. Investors must understand the implications of reduced liquidity and ensure these investments are appropriate for their objectives and time horizon.

Why is private equity becoming increasingly important?

The listed investment universe has become more limited in many markets, while an increasing number of companies are choosing to remain private for longer. As a result, many businesses now generate a significant portion of their value before listing on public markets.

Private equity gives investors access to a much broader universe of companies and sectors that may not be available through listed markets. It also provides an opportunity to participate in businesses earlier in their growth journey.

How should investors think about private equity within a portfolio?

Private equity shouldn’t be viewed as a standalone investment theme, but rather as part of an overall asset allocation strategy.

Listed equities, private equities, fixed income and other asset classes each play different roles within a portfolio. Private equity represents an illiquid form of equity, so investors should expect an additional return to compensate for locking up their capital over longer periods.

Diversification remains essential. Investors should spread exposure across managers, sectors, geographies and investment styles rather than relying on individual opportunities.

That said, investors shouldn’t focus on finding the next exceptional success story. Private equity should instead be viewed as part of a diversified equity allocation within a broader portfolio. The objective is to earn an additional return for accepting lower liquidity, rather than chasing a handful of high-profile investments.

Why has private credit grown so rapidly?

Private credit has expanded significantly over the past decade as tighter banking regulation, particularly after the global financial crisis, reduced banks’ willingness to lend to certain borrowers.

Private credit managers stepped in to fill this funding gap. Unlike traditional banks, they are often able to structure loans around the specific needs of businesses and adapt financing terms where appropriate.

When borrowers encounter difficulties, private credit managers can also take a more hands-on approach, working alongside management teams to improve business outcomes rather than immediately pursuing legal remedies. This flexibility has been one of the key drivers of the growth of this asset class.

Sanlam Private Wealth recently launched the Global Alternatives Fund. Tell us more about this.

The objective of the fund is not simply to provide access to alternative investments, but to create a practical way of incorporating them into diversified client portfolios.

As we’ve mentioned, global private market investments often require very large minimum investments and are difficult to access directly. Rather than investing clients into individual private market funds as opportunities arise, the Global Alternatives Fund provides a single, evergreen investment vehicle that gives exposure to private equity, private credit and hedge funds.

This creates a scalable solution that can be incorporated into client portfolios, giving investors diversified exposure to a broad range of private market investments through a single fund.

What are the main trade-offs when investing in alternatives?

The biggest trade-off is liquidity. Investors should only allocate capital they will not need for many years, as these investments cannot easily be sold during periods of market stress.

Fees are another important consideration. Alternative investment managers often charge higher management and performance fees than traditional investment products. However, fees should always be evaluated alongside net returns. The key question is whether investors receive sufficient additional returns after all costs have been deducted.

Transparency is also different. While reporting may not resemble that of listed investments, information asymmetry can actually create opportunities. Skilled managers with proprietary deal flow and specialist expertise can identify attractive investments before they become widely available, potentially enhancing long-term returns.

How much should investors allocate to alternatives?

There is no universal allocation that suits every investor. The appropriate exposure depends on factors such as wealth, liquidity requirements, investment objectives and risk tolerance.

High net worth investors often allocate a meaningful portion of their portfolios to private markets, while retail investors typically have more modest exposures.

The starting point should always be understanding future cash flow requirements. Investors should never commit so much capital to illiquid assets that they compromise their ability to meet future financial needs or unexpected expenses.

What is the outlook for private markets in South Africa?

Private markets have the potential to play an increasingly important role in South Africa’s economic growth.

Infrastructure investment has already attracted significant private capital, and there is considerable scope for private equity and private credit to support business expansion and job creation. South Africa has substantial pools of private capital available for investment, but unlocking that capital requires policy certainty and a stable investment environment.

If confidence continues to improve, private market investment could become an important contributor to long-term economic growth.

What does the future hold for alternative investments?

Alternative investments are likely to become increasingly integrated into mainstream portfolio construction over the coming decade as asset managers develop more accessible investment structures.

Another important development will be the growing application of blockchain technology. While cryptocurrencies have attracted most of the attention, the longer-term opportunity may lie in blockchain’s ability to improve the infrastructure that underpins financial markets, including settlement, trading and the transfer of assets.

As these technologies mature, investors are likely to focus less on the underlying technology itself and more on its practical applications in improving the efficiency and accessibility of financial markets.

This article is provided for information purposes only and does not constitute financial advice or an offer to invest. Investors should consult their portfolio manager or a licensed financial services provider to determine whether the investment is appropriate for their individual circumstances.

Note: The SPW Global Alternatives Fund is a foreign collective investment scheme approved for distribution in South Africa by the Financial Sector Conduct Authority (FSCA) under Section 65 of the Collective Investment Schemes Control Act. The fund is classified as a Qualified Investor Hedge Fund and is only available to investors who meet the applicable eligibility requirements.