Where rich South Africans are investing their money

Rich South Africans are increasingly investing their money in structured investments as they look for a higher level of security and certainty regarding returns. 

Liberty revealed that in 2024, South Africans have pumped R17.5 billion into structured products, driven by high-net-worth individuals with at least R250,000 to invest. 

This has driven structured investments to levels last seen in the 1990s when security was needed, given the political turmoil in South Africa. 

Luvhani Makoni, Lead Specialist, Investment Propositions at Liberty, said that year-to-date structured investment sales in South Africa are estimated at between R17.5 billion and R26 billion. 

This is small by international standards, with the European market attracting between $150 billion and $200 billion.

In practice, a structured product is a financial instrument issued by a bank that offers the possibility of obtaining a return depending on the achievement of a predetermined market scenario. 

It can be a tool for portfolio diversification and an alternative to traditional financial investments. Structured products are designed to protect your capital or give positive returns when a direct investment in the market would have produced a loss.

Makoni said some investors are taking the chance to lock in higher returns than would be the case later when interest rates are adjusted downwards in line with expectations.   

“Structured investments have some level of risk but have become increasingly popular because of the upside return potential linked to the performance of underlying indices and the security that they offer due to the level of protection,” she said. 

South African investors are particularly looking for the protection offered by offshore investments within structured products. 

Many of Liberty’s clients have turned to its Structured Global Performer V5, which is heavily exposed to the S&P 500 and the Euro Stoxx 50 indices. 

Investing offshore has been a growing trend among South African investors, with many looking to protect their savings from the depreciation of the rand and political uncertainty. 

FNB Wealth and Investments CEO Bheki Mkhize told Daily Investor that the bank is experiencing sustained demand from clients to access offshore investments. 

He explained that protection from a depreciating currency is not the only reason for this, as many invest offshore for better returns and increased diversification.

“People want returns, and where those returns come from, they do not really mind,” he said. 

The local economy has performed poorly compared to its international counterparts. South Africa’s GDP growth rate has not exceeded 5% since 2007.

This has and will continue to inhibit the performance of equities on the JSE.

Furthermore, the consistent depreciation of the rand versus the dollar has made it challenging to earn a real return in dollar terms by investing in South African companies.

South Africans also look to invest offshore to gain access to a wider range of investment opportunities as the local market is tiny compared to its global counterparts. 

In particular, the JSE does not offer investment opportunities in technology, biotech, pharmaceuticals, and climate.

The combination of these factors has driven the increasing popularity of offshore investments in South Africa, with demand often exceeding that of local investment products.

Mkhize also pointed out the increasing number of local asset managers partnering with global counterparts to increase their access to foreign equities and leverage their expertise as a factor. 

In terms of wealthy South Africans, ultra-high-net-worth individuals are increasingly looking to private market investments for returns as the local stock exchange shrinks. 

Stonehenge Fleming private markets partner Richard Hill said that private market assets are set to double in value by the end of 2029. 

This has been driven by the trend of public companies delisting and private assets becoming increasingly popular with institutional investors. 

Data from UBS indicates that wealthy families invest more than a third of their assets in the private market. 

According to Stonehage Fleming’s research, private markets have significantly outperformed the public markets, with initial capital invested multiplying by 10.4 times between 2000 and 2024.

‘Private markets’, in this context, encompasses private equity, growth equity, real assets, and real estate.