How are South Africa’s pension funds using their new-found freedom to invest in alternatives?
South Africa’s pension funds have increased investment in alternatives following legislation which took effect in 2023, but how are they going about doing so? (Saul Loeb/AFP via Getty)
South African pension funds are shifting their diversification strategies toward alternatives as trustees face internal pressure to achieve sustainable long-term returns and to hedge and diversify against stock market volatility.
Ernest Mabaso, head of multi-asset investment at Alexforbes, says his company had made a strong case for seeking other sources of return and alpha beyond the listed space for its Alexforbes Performer Portfolio, with assets of $17.2bn, he told MandateWire, Asset Owner’s Exchange’s sister publication.
“In the current market environment, characterised by high volatility and negative equities, the alternative asset class has delivered steady, positive absolute returns while providing the necessary protection. There is also a societal impact from investing in the space, achieved without compromising returns,” Mabaso said.
Meanwhile government policy is putting significant and growing pressure on South African pension funds to invest in alternatives such as infrastructure, private equity and private credit.
The government frequently lobbies retirement funds to help finance national projects that bridge the infrastructure gap in energy, water and transport, and to stimulate job creation as part of its socio-economic development drive.
South African pension funds have increased their investments in alternatives over the past three years, following changes to regulation 28 of the Pension Funds Act, which took effect in 2023 - primarily focusing on infrastructure, private equity, private debt and renewable energy projects.
South African pension funds can now invest up to 45 per cent in infrastructure, up to 15 per cent in private equity, up to 10 per cent in hedge funds, up to 10 per cent in commodities, and up to 2.5 per cent in excluded assets, excluding crypto assets, which are prohibited.
The South African Venture Capital and Private Equity Association’s Private Equity Industry Survey 2025 highlights the trend, showing that private markets raised $3.5bn between 2022 and 2024. 2023 had the largest fundraising with $1.7bn – a 43.4 per cent increase from 2022.
The drive to invest in alternatives was further supported by the Asset Owners Forum South Africa, officially launched in 2021. The initiative expanded to a broader pan-African scope with the launch of the Asset Owners Forum for Infrastructure Exchange Institute in June.
The institute aims to accelerate infrastructure investment by pooling resources from major domestic pension funds.
The National Fund for Municipal Workers, with an AUM of $1.5bn, has increased its exposure to alternatives over the past 20 years from zero to 9 per cent in 2011 and to 11 per cent by the end of 2025, Leslie Ndawana, the fund’s executive principal officer, told AOX.
As of January 2026, the fund had invested 10.8 per cent of its total AUM in alternatives, with the largest percentages of 3.9 per cent in energy, 1.7 per cent in infrastructure development and 1.3 per cent in information and communications technology, Ndawana noted.
He said the need for trustees to balance developmental requests with strict fiduciary duties, liquidity needs and project governance concerns meant the fund was seeking new asset managers to conduct feasibility studies and prepare investment cases.
“Risk measurement and adequate governance are critical to ensuring transparency and accountability, making investments attractive to pension funds,” Ndawana said.
Ndawana underscored the importance of pooling capital from multiple sources to invest in standalone and regional infrastructure projects, including ports, rail, energy, education, healthcare and agriculture - for example through specialised social impact bonds.
This is underscored by the Alexforbes Manager Watch Survey which, following the regulatory changes, showed South African pension funds prefer to pool their investments through funds to better mitigate risk and improve liquidity, rather than investing directly in infrastructure deals.
“Most of the investments in alternatives are via funds,” Alexforbes’s Mabaso said last week.
The Eskom Pension and Provident Fund, with AUM of $16bn, has increased its allocations gradually over time, reflecting an opportunity-driven approach, the fund’s deputy CIO, Phathutshedzo Mabogo told AOX.
Private markets accounted for approximately 2 per cent of assets under management in 2011 and rose to about 7 per cent as of June 2026.
“Allocations have been increased selectively, based on the availability of attractive investment opportunities and their expected risk-adjusted returns. This measured approach has enabled the fund to build meaningful exposure to private markets while maintaining prudent portfolio diversification and risk management,” Mabogo said.
The EPPF's private markets portfolio follows a predominantly externally managed fund model and is diversified across several alternative asset classes.
Approximately 85 per cent of the portfolio is invested through funds managed by external managers, while 15 per cent is allocated to direct investments and co-investments, Mabogo noted.
“The current split within private markets is roughly 65 per cent in South Africa and the rest of Africa, with the balance invested offshore, reflecting a balanced approach to capturing both domestic and offshore investment opportunities,” Mabogo added.
The South African allocation provides exposure to domestic growth opportunities and developmental priorities, while the pan-African and offshore allocations broaden the opportunity set, enhance diversification, and provide access to markets, sectors, and managers that may not be readily available domestically, Mabogo noted.