Alternative assets

Alternative-assets
Alternative-assets

Have you dipped your toe into the world of alternative assets? A few years ago we’d have said a savvy investor’s portfolio should allocate around 5% to alternatives. Today, without hesitating, we’d say that’s more like 10-15%. In South Africa, alternatives continue to gain traction as investors seek diversification and enhanced returns beyond traditional asset classes. 

A January Forbes article confirms this global shift, “The financial industry is going through a long-needed transformation. In the past, there was a clear distinction between traditional broker-dealers and alternative asset platforms providing access to investment opportunities in private equity, venture capital, real estate, and other real assets. However, growing interest in alternative assets is changing the old ways of investing.”

There are 4 alternative investment options to watch out for. 

ESG (Environmental, Social, and Governance)

While there’s a notable rise in sustainable investing among South Africans, this tends to be more from institutional investors increasingly integrating ESG factors into their investment decisions. It differs slightly though when it comes to retail investors. A Daily Investor survey from June 2023 noted that while ESG is definitely a growing trend, retail investors are still in the minority in South Africa, but it’s growing year on year.

Given South Africa’s ongoing energy crisis, green energy is increasingly an absolute necessity – made sweeter when there’s a tax incentive involved. We are now seeing the fast growth of new Section 12B funds, following the amended Section 12BA of the Income Tax Act, which enables taxpayers to invest in a portfolio of renewable energy-producing assets and benefit from the SARS-approved 125% allowance as promulgated into law in December 2023. The 125% tax deduction applies to installations that generate electricity for the first time between 1 March 2023 and 28 February 2025.

Secondaries

A March report from Bain & Company highlights the increasing demand for liquidity solutions within the private equity space, suggesting that expanding the secondary market may offer a viable solution. To illustrate the market’s growth, secondary funds raised 92% more capital in 2023 compared to the previous year globally.

Investing in secondaries also provides new investors in the private markets with a faster route to building a diversified portfolio.

We’ve had conversations with a number of different investors looking to sell a portion of their existing investment commitments into a secondary market. This market will continue to grow, and it’s one we’ve got our eyes on. Purchasing investors should be taking longer-term views, and despite price discounts tightening, we still believe there’s value on the horizon.

Fractional Ownership

Fractional ownership has proven to be a very attractive option for both bush lodges and golf estates across South Africa. The high property prices are often too expensive for most individuals to buy outright. This model allows people to purchase a share of the property, enabling them to enjoy ownership without bearing the full cost alone.  

Fractional ownership is expected to surge in 2024 for both institutional and retail investors. The benefit of fractionalisation is that it allows for increased accessibility to investments, enabling small investors to participate in the market at a lower cost.

Equity Crowdfunding

A February Time article has flagged equity crowdfunding as one to watch, stating crowdfunding as “an increasingly popular way for entrepreneurs and start-up businesses to raise much-needed capital for their businesses. In the past, only accredited investors could invest in private equity through crowdfunding, but new rules in recent years have opened this type of investment to nonaccredited investors as well.”

The great thing about equity crowdfunding is how the platforms give investors access to a range of asset classes, including telco, finance, art, agri, and even emerging categories like cannabis, alternative proteins, and vertical farming. 

Alongside alternative investments growing in popularity, we are also seeing the number of newly listed companies decreasing, and several listed entities choosing to delist. This shifting dynamic further opens the door for private equity and alternatives as a means to diversify and bolster your investment portfolio. 

But we also need to note that despite the growing popularity of alternatives, there is always some possible hesitancy from potential investors approaching investments cautiously. It’s critical to do your homework, assessing any complexity, regulatory and/or tax implications, and liquidity. We always advise looking at any investment’s track record and the management team. 

Whether you’re just starting out on your journey into alternatives, or a seasoned pro, it’s clear the opportunities for you are growing as the investment landscape rapidly evolves. We are pioneering fresh thinking and investment products in alternative investing. Our proprietary selection of alternatives caters to different investor appetites, from a minimum investment of R1,000 to R100,000+, across debt, energy, hospitality, private equity and venture capital, and equity crowdfunding.

If you’re interested in learning more about our proprietary selection of alternative investments, email info@grovest.co.za or call 011 262 6433

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