While most retirement fund assets remain concentrated in listed markets, much of the industry’s focus has centred on ESG integration within those portfolios.
Speaking at a session hosted by the Institute of Retirement Funds Africa, Naleni Govender (pictured), the managing director and head of Enko Capital South Africa, said that focus needs to broaden – not by replacing listed investments, but by understanding how listed and unlisted assets can work together.
She said the question is not whether to choose listed or unlisted investments, but how a combined allocation can support both long-term returns and measurable impact, within the flexibility provided by Regulation 28.
Impact investing moves beyond a label
Govender said impact investing, from an institutional perspective, is not philanthropy but the intentional allocation of capital to deliver both financial returns and measurable social or environmental outcomes.
She emphasised that impact and returns should not be seen as trade-offs, but as “mutually beneficial when approached with intentional and good governance”.
She said this is particularly relevant in South Africa, where investors are operating in a changing environment shaped by structural challenges. These include a shrinking listed market, persistently high unemployment, inequality, and infrastructure constraints.
In this context, she said ESG considerations cannot be treated as separate from investment decisions and must be understood alongside the country’s broader economic and social realities.
Govender noted that South Africa’s ESG risk profile is complex, with factors such as high carbon dependency, social pressures linked to unemployment, and governance concerns, including corruption, all affecting investment outcomes.
She said these conditions mean investment decisions need to go beyond exclusions, and instead consider how capital can support long-term stability, inclusive growth, and economic development.
Impact investing, she said, provides a way to align portfolio performance with these broader objectives, particularly in emerging markets where capital plays a more direct role in shaping outcomes.
Regulation 28 opens the door – execution is key
Govender said the 2021 amendments to Regulation 28 have created more room for retirement funds to allocate to alternative assets, including private equity and infrastructure.
She highlighted that the regulation now allows:
- Up to 45% in unlisted assets.
- 15% in private equity.
- A 45% allocation to infrastructure, reflecting a focus on sectors such as energy, transport and digital systems.
She described these changes as part of a broader shift in policy thinking, where long-term capital is expected to play a greater role in supporting economic development.
At the same time, she emphasised that regulatory flexibility on its own is not enough, and outcomes will depend on how effectively trustees implement and manage these allocations.
Private markets: opportunity and real risk
Govender said private markets come with specific challenges, including illiquidity, complexity, and limited transparency compared with listed investments.
She noted that capital in some strategies may be committed for extended periods, often eight to ten years or longer, and valuation and data can be less consistent across the asset class.
She also acknowledged that past failures and negative experiences have contributed to hesitation among trustees when considering these investments.
At the same time, she cautioned against dismissing the asset class entirely on that basis.
“Investing is a risk… even in the listed market. If we had known then what we know now about Steinhoff, would any of us have invested?”
She said the key issue is how risks are understood and managed, rather than the asset class itself.
Due diligence is an ongoing process
Govender said outcomes in private markets depend heavily on how investments are assessed, selected, and monitored over time, rather than the asset class itself.
She said trustees need to take a structured and detailed approach to due diligence, including understanding the strategy, risks, and underlying assumptions of an investment, and working closely with their advisers.
“When you are considering private market investments, there is due diligence that is required… Good governance, manager selection, and policy alignment are key mitigants…”
She added that due diligence is not a once-off exercise at appointment, but an ongoing discipline. Trustees should continue to engage with managers, interrogate performance, and assess how risks and outcomes are being managed over time.
Govender also pointed out that where investments fail, trustees should take the time to understand what went wrong and why, rather than dismissing the asset class altogether.
She emphasised that this requires trustees to be sufficiently informed to ask the right questions, while ensuring that risks, performance, and outcomes are continuously assessed.
Partnership between trustees and advisers
Alongside this, Govender said private market investing requires close co-ordination among trustees, asset consultants, and asset managers.
She said trustees need to build enough understanding to engage effectively with their advisers, while also holding them accountable for how investments are assessed, managed and reported on.
The responsibility, she suggested, is shared – trustees must ask the right questions, while advisers and managers are expected to provide clear, well-supported analysis.
What to look for in managers
Govender said the choice of manager is a key determinant of outcomes in private markets.
She indicated that trustees should assess:
- The manager’s approach to governance and risk management.
- How clearly they explain strategy and underlying assumptions.
- Whether they can demonstrate impact frameworks and reporting.
- Their ability to articulate both risks and expected return drivers.
She added that trustees should expect transparency and be prepared to challenge managers where necessary.
Measuring impact remains a challenge
Govender acknowledged that impact measurement is not yet standardised and can vary across managers and strategies.
She said this makes it important for trustees to ensure that managers have clear frameworks, consistent measurement and regular reporting.
Trustees, she suggested, should be more deliberate in defining what impact means for their funds and how it is assessed.
Two-pot system sharpens the allocation challenge
Govender said the introduction of the two-pot retirement system changes how funds need to think about portfolio construction, particularly in balancing liquidity requirements with long-term return objectives.
With a portion of members’ savings now needing to remain accessible, she said funds are likely to increase allocations to more liquid assets such as cash and bonds, which may affect overall return outcomes over time. This places greater pressure on the remaining long-term allocation – particularly the preservation pot – to deliver growth.
Govender said trustees should therefore consider how to use less liquid assets, including private markets, to enhance return potential, given the illiquidity premium associated with these investments.
She noted that this creates a need for a more deliberate balance across the portfolio, where liquid and illiquid assets work together to support both short-term access and long-term performance.
At the same time, she said trustees need to think carefully about how these strategies are communicated to members, particularly in explaining the role of alternative assets in delivering long-term outcomes.
She added that the two-pot system reinforces the need for a more integrated approach to asset allocation, where listed and unlisted investments are used together rather than treated as separate decisions.
What this means for trustees
Govender said this places greater responsibility on trustees’ investment decision-making.
She indicated that trustees need to:
- Build a working understanding of private markets and impact investing.
- Ensure investment policies reflect both listed and unlisted opportunities.
- Work closely with advisers to assess and monitor investments.
- Hold managers accountable for performance, governance and impact delivery.
She added that trustees should not rely passively on advisers but should be able to interrogate assumptions and understand how outcomes are achieved.
A more deliberate approach
Govender said private markets should be considered as part of a broader, integrated investment strategy rather than a separate allocation decision.
She emphasised that the key elements are already in place – including regulatory support, available capital, and a clear need for investment into the real economy.
The focus, she suggested, is on how these are applied in practice, particularly through strong governance, informed decision-making and effective oversight.
