South African institutions are, on average, lacking significant commitment to alternative assets and private equity investments, with many funds having no exposure at all, according to Paul Boynton, CEO of Old Mutual Alternative Investments.

Boynton said that since 2000, Old Mutual has steadily increased the percentage allocation of its total investment portfolio to alternative assets including private equity, infrastructure, impact investments and natural resources.

Old Mutual currently has a target allocation to alternative assets of 10% and an existing exposure which is just above this target.

In comparison, Calpers, the largest US pension fund and one of the world’s largest private equity investors, has a target asset allocation of 10% to private equity and 1% to infrastructure.

“In the late 1990s, we ventured into infrastructure because of the long-dated nature of the assets as well as the potential they had to provide above-average returns. We also saw the merit in investing in assets that had a positive economic spinoff – improving infrastructure should help boost GDP growth,” said Boyton.

“We later became a more active player in traditional leveraged buyouts and growth capital private equity, predicated on the belief that high investment returns would be achieved. More recently, we have been attracted to renewable energy projects, including wind, hydro and solar developments,” he added.

Since 2000, Old Mutual has invested R7bn ($0.59bn) in private equity and infrastructure funds and R11bn ($0.93bn) in direct deals in both private equity and infrastructure, an aggregate investment of R18bn ($1.52bn).

Boynton said that their investment strategy has paid off, having realised a profit of R15bn ($1.26bn) over the past 15 years from these two asset classes alone.

“Though private equity is considered an illiquid asset class because of the length of time it takes to realise returns, the significant return premium is more than sufficient compensation. Old Mutual’s experience should encourage more funds to consider an allocation,” Boynton said.