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Private markets: The new tactical position in portfolio
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www.moneymarketing.co.za
By Siobhan Cassidy
MoneyMarketing Contributor
P
rivate markets, once a peripheral asset class, are rapidly becoming central to building resilient, future-ready portfolios. This shift reflects a structural change in where growth, diversification and long-term value are being created. This global trend is increasingly visible in South Africa, where pension funds, wealth managers and high-net-worth investors are recalibrating portfolios to include private equity, private credit, infrastructure and other alternative assets. For decades, portfolio construction followed a familiar formula: equities for growth, bonds for stability, and real estate for long-term appreciation. That framework is increasingly under pressure in a world of heightened volatility, rising correlations, a shrinking public market universe, and accelerating innovation outside the listed space. As public markets become more concentrated and reactive to macro sentiment, private markets are emerging as a tactical tool for advisers seeking differentiated outcomes for clients. Data from institutional investors tracked by Preqin, a global authority on private markets intelligence, shows portfolios steadily moving away from the traditional 60% equities/40% bonds model. Average allocations now resemble 50% equities, 30% bonds and 20% alternatives, incorporating private equity, private credit and infrastructure. This shift is driven not only by volatility in public markets but also by investors seeking uncorrelated return streams and access to businesses still in early stages of growth, where strategic engagement can add value over the medium to long term. “The traditional 60/40 portfolio model wasn’t built for today’s conditions,” says Stephan Hartzenberg, Group Director at PIM Capital, a global business specialising in fund design and administration across asset classes and markets. “Public markets have become more correlated across regions, more reactive to macro sentiment, and more constrained by regulation and short-term pressures.” He adds that as the universe of listed companies shrinks, investors who rely solely on public markets are accessing a smaller, more mature opportunity set. Rory Ord, Head of Private Markets at 27four Investment Managers, agrees that private assets are becoming a core engine of portfolios rather than a niche bolt-on. “Public markets capture only a certain
share of corporate growth as more businesses raise capital privately and stay unlisted for longer – particularly in growth, technology and mid-market opportunities,” says Ord. At Alexforbes Investments, Gyongyi King, Chief Investment Officer: Private Markets, notes that as they “have witnessed increasing correlations among listed asset classes, such as equities and bonds, private markets have become pivotal in driving diversification within portfolios. Not only are alternative assets a key component of our tactical asset allocation but are key in driving long-term strategic outcomes for investors.” A growing share of value creation is taking place outside public markets. Sean Neethling, Head of Investments at Morningstar South Africa, points to the US, “where companies such as SpaceX, OpenAI and Stripe – so-called unicorns valued at more than $1bn – represent substantial value creation occurring entirely in private markets”. Beyond the regulatory burden and constant performance scrutiny associated with listed markets, Samantha Pokroy, founder and CEO of private equity firm Sanari Capital, says companies are staying private for longer simply because they can, thanks to the increased availability of private capital. As public markets increasingly reflect later-stage, mature businesses, private markets provide access to earlier growth phases, operational transformation, and infrastructure development. For advisers, this creates opportunities to align client portfolios with businesses that are innovating and shaping longterm economic growth. Global data suggests the expansion of private markets represents a structural change. Cameron Joyce, Head of Research Insights at Preqin, says: “As we look toward 2030, private markets are entering a new era of growth – one defined by innovation, resilience and strategic reallocation. With alternative assets forecast to reach $32tn in AUM by the end of the decade, this transformation is not only cyclical but structural.” Continued on next page