OPINION | You cannot call yourself successful in a society that fails

SA investors allocate only about 2% of their assets to alternatives, well below international norms of 10-20%. Photo: Getty Images
SA investors allocate only about 2% of their assets to alternatives, well below international norms of 10-20%. Photo: Getty Images
  • Investment portfolios are typically skewed heavily toward listed equity, with listed bonds, property and cash making up the balance.
  • Despite Regulation 28 enabling at least 35% of allocations toward private markets (such as private debt and equity), SA investors allocate only about 2% of their assets to alternatives, well below international norms of 10-20%. 
  • There are potentially positive inflation-linked opportunities for diversification benefits in asset classes that are relatively uncorrelated and still provide attractive valuations. 


As impact investors we look for opportunities to marry financial return with a measurable positive social and economic impact. We seek ways to make a contribution to grow our economy in a sustainable and more inclusive manner and ask ourselves this guiding question: What kind of society do we want to live in and retire to, and what role can we play in determining this? 

South Africa has more than its fair share of challenges, perhaps most acutely captured for the 40% of people between the ages of 15 and 64 who are not employed, or in education or training. 

Internationally many corporates have come to realise that they are part of a stakeholder network across employees, customers, shareholders and the broader operating environment, and are being held to account to integrate sustainability into business models.  

As Dutch businessman and global climate leader Feike Sijbesma observed in 2012: "You cannot be successful, nor even call yourself successful, in a society that fails." 

So, addressing the contribution we can make as investors is a critical aspect of both the sustainability conversation and a future-focused approach to investing. 

Investing for impact 

The first question we need to be asking ourselves is how much investment is currently being allocated towards impact investing. 

We know that investment portfolios are typically skewed heavily toward listed equity, with listed bonds, property and cash making up the balance. Despite Regulation 28 enabling at least 35% of allocations toward private markets (such as private debt and equity), our research shows that South African investors allocate only about 2% of their assets to alternatives. This is well below international norms of 10-20%. Add to this a further two largely overlooked factors, and South African portfolios are relatively underexposed to our real economy. 

Firstly, more than 60% of the JSE's Top 40 derives its revenue offshore. Secondly, in the debt market, more than 80% of companies fund themselves through the banking system (private markets). This means that pension and other funds that only access the listed bond market for credit exposure are limiting diversification benefits to just 20% of SA Inc's debt needs. It is evident that our collective savings exposure to the real economy is highly constrained. Some of this is no doubt due to legacy legislation, but Regulation 28 now allows up to 35% exposure to real assets. 

Given the challenging environment investors face, we are well-versed in factors such as a constrained economic outlook, sluggish stock market performance, political uncertainty and lack of business confidence that put a lid on our investment expectations. However, this would seem an opportune time to explore alternative sources of return, such as those found in the real economy in infrastructure and private equity and debt. This offers potentially positive inflation-linked opportunities for diversification benefits in asset classes that are relatively uncorrelated and still provide attractive valuations. 

Behind the curve 

South Africa is unfortunately also a laggard in the swiftly-growing world of impact investing. The latest 2018 Global Impact Investing Network survey of 229 impact funds reported on US$228 billion under management. They found that the market is diverse with the top sectors of investment including financial services (19%), energy (14%), microfinance (9%) and housing (8%). Overwhelmingly, impact investors also reported performance in line with both financial and impact expectations. 

In South Africa, given the regulatory requirement to consider more sustainable investing and development prerogatives we as investors face, we urgently need to develop our impact investing capabilities and fund offerings to help convert many of our challenges into opportunities for investment.

The country's first job creation fund - the Jobs Fund - was underpinned by a guarantee from National Treasury and has now created more than 10 000 permanent and decent jobs while generating consistent benchmark beating returns. But we need many more such impact funds to be both demanded by our financial industry. 

The role of business 

We could ask where's the vision that recognises the role that business could have in believing and building towards inclusive growth?

Instead of collectively hedging business against South African risk - which some would argue is quite rational - how different could it be if more businesses genuinely committed to working in partnership to deliver the sustainable growth of which we are capable? The small to medium-sized enterprises (SME) Fund in collaboration with the Jobs Fund are hopefully good examples of how this could be done. 

A win-win opportunity 

Regulation 28 for pension funds also encourages funds to invest for long-term sustainable outcomes, which, if embraced, could extinguish the prescribed asset menace. 

Articulating these values and beliefs within a sound governance framework gives agency to pension fund owners to expressly determine how their investments are made. Current pension fund laws make it a requirement to incorporate sustainable investing and explicitly require consideration of environmental, social and governance factors.  

- Heather Jackson is Head of Impact Investing at Ashburton Investments 

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