How private market investments offer real benefits for pension fund members

BY DAVID MOORE Head: Alternatives, Alexander Forbes Investments

With private markets, your

investments are made tangible and real. They are investments into small and medium enterprises (SMEs), schools, retirement villages, roads and power plants that you and future generations will benefit from.

Private market investments in our everyday life

John is a newly employed member in a pension fund. Each month when his contribution towards his employer-led pension fund gets deducted from his salary, a certain portion gets allocated to the investment portfolio of his choice.

John’s investment portfolio is an accumulation portfolio that aims to grow his retirement savings. Among other investments, an allocation to private market investments means John directly contributes to companies with which he interacts constantly, even if he doesn’t know it yet.

Private market investments are those that keep on giving

John has just bought a home in a new development that offers affordable, quality housing in an estate close to his place of work – social infrastructure managers within private markets often fund such developments. John can easily work from home using the highspeed fibre connection in the estate. Interestingly, the fibre-to-home provider that installed the connection was funded by a private equity manager within the private markets asset class.

Something that could interrupt both his work from home and his Netflix viewing is load shedding. Fortunately, his estate uses an off-grid renewable energy installation as their main energy supply, which is provided by a solar power supplier. Here too, the estate’s solar power supplier was a private market beneficiary of a domestic infrastructure manager.

During the day, John receives a call from his sister who has some good news: she has just landed a job at a newly built shopping centre in her community – a bricks-and-mortar asset built, owned and operated by a direct property manager within private markets. This centre is also conveniently positioned near the retirement centre that John’s mom stays in and close to his younger son's primary school – both the school and retirement accommodation were financed by unlisted credit practitioners within private markets that filled the funding gap between sponsor and commercial banks.

All the above assets form part of private market investments that John had contributed to with his first salary – and will continue to do so with each contribution over his working career.

Social impact with commercial returns

Private market investments are those that keep on giving. Their multi-dimensional benefits are a key rationale for their entry into mainstream investment portfolios, globally.

This is a far cry from being ignored in the past because they were difficult to convert into cash, at short notice. However, they have consistently added significant value to domestic institutional investor portfolios by:

• Boosting economic growth in creating jobs and key social infrastructure

• Delivering lower volatility by not depending as much on investment performance relative to traditional investments.