How to use private market investing to beat inflation as JSE lags

Can private market assets such as private equity, private debt, real estate and infrastructure funds help investors beat inflation after the JSE has struggled to do so over the last five years?

Private market investing, or alternative asset investments, refer to those not traded on a public exchange.

The FTSE/JSE All Share Index returned only 4.7% annualised over the last five years, below the inflation rate as measured by the Consumer Price Index (CPI), which means anyone invested in the JSE over this period has experienced a decline in the purchasing power of their money.

And given the tough economic circumstances the country finds itself in, and while listed share investing is a long term discipline, it’s hard to predict if and when better days will return for listed shares.

Better returns with portfolio diversification

Waiting it out is what many people will do but diversifying portfolios with private market assets could be a sound step for institutional, high net worth and even everyday investors who save each month. Private market assets offer more stable returns, inflation beating investments and offer higher expected returns. They may also fit the profile of social investing.

What are some of the options?

According to the SAVCA South African Private Equity Performance Report, the 75% percentile return on South African Private Equity Funds was just shy of 15.1% for 2010-2015 vintage funds with a median return of 9.5% per annum both well ahead of inflation. Ashburton Investments’ Private Equity Fund’s returns are 15.9% per annum since its inception in 2014.

Ashburton Investments’ High Yield Credit Co-Investment Fund, which allows investors to invest in loans to borrowers who have already been vetted and credit checked by Ashburton Investments, have returned 11.4% over four years. These funds typically provide quality income streams.

Another investment which provide high returns are Ashburton Investments’ Impact Funds. These social impact funds aim to invest in job creation initiatives which create a positive social impact without sacrificing return. Fund I was the first of its kind in South Africa and has returned 10.6% over five years. Fund II was launched in 2018 and has returned 10.8% in the last 12 months.

Another attractive option is infrastructure assets which has returned 7.9% over four years. In South Africa in particular, there is a huge demand for funding for infrastructure projects. After the success of the Renewable Energy Power Producer Programme (REIPP), there is strong desire to extend it to the broader infrastructure investment needs of the country such as housing, public transport, water infrastructure and schools.

Private sector money along with the banking system and pension funds will be needed to assist in infrastructure development.

What are alternative asset investments?

Ashburton Investments offers the following range of private market investments:

Private Equity

Mezzanine Financing

Infrastructure Debt

Unlisted Debt Opportunities

Impact Funds