Institutional investors face a new era of complexity and opportunity. As retirement and pension funds seek to balance long-term growth, liquidity, and responsible investing, Exchange Traded Funds (ETFs) have emerged as a transformative solution, for public markets and also as a strategic bridge to private market exposure.

The Private Market Challenge

Private markets, namely private equity, private debt and infrastructure, offer attractive illiquidity premiums and diversification. Yet, for many South African pension funds, direct access remains limited. Regulatory allowances (such as Regulation 28’s 15% cap on private equity and 45% cap on infrastructure) are underutilised, largely due to operational complexity and liquidity constraints in defined contribution (DC) funds.

Global Trends, Local Relevance

Across the globe, leading asset managers are pioneering hybrid solutions that blend liquid public instruments with illiquid private assets. This approach delivers diversification, liquidity, and long-term value to retirement investors. Locally, the 2025 Sanlam Benchmark™ Survey highlights a strong appetite for ESG integration and investments that create positive change. South African funds are prioritising job creation, education, renewable energy, and health, with many seeking Regulation 28-compliant strategies.

ETFs: The Strategic Enabler

ETFs play a vital role in overcoming these barriers. Here’s how:

• Liquidity Management
  Private market investments are inherently illiquid, making it difficult for funds to manage inflows, outflows, and sudden market shifts. ETFs provide a liquidity sleeve, an allocation that can be quickly adjusted, sold, or rebalanced, allowing funds to maintain flexibility without sacrificing exposure to long-term private assets.
• Transition Management
  Moving assets into private markets often involves extended capital calls and interim cash holdings, which can drag on performance. ETFs allow funds to replicate their strategic asset allocation, preserve liquidity, and minimise cash drag during transitions. They can also serve as liquid proxies for private market exposures, keeping portfolios aligned with long-term objectives while capital is being deployed.
• Cost Efficiency and Transparency
  ETFs typically offer lower management fees and daily disclosure of holdings, supporting governance and oversight. This transparency is crucial for trustees and principal officers tasked with fiduciary responsibility.

Regulatory Support and Market Innovation

South African pension funds have historically lagged in private market allocations, missing out on illiquidity premiums and unique growth opportunities. As institutional ETF usage grows, so does market liquidity and efficiency, supporting greater uptake of private market allocations.

The Future: Convergence and Customisation

The border between traditional and alternative asset management is dissolving. Clients are driving the convergence, seeking integrated solutions that blend public and private exposures. Product innovation is accelerating, with public–private strategies and evergreen products proliferating. ETFs are becoming essential components of institutional portfolios, well-positioned to shape future investment strategies as regulatory frameworks and investor demands evolve.

Conclusion

ETFs are no longer just passive vehicles; they are strategic instruments for institutional investors seeking flexibility, efficiency, and innovation. As trustees, principal officers, and investment consultants look to build resilient, future-ready portfolios, ETFs offer a compelling solution for navigating today’s challenges and tomorrow’s opportunities.

This article was first published here

Disclaimer

Satrix consists of the following authorised Financial Services Providers: Satrix Managers (RF) (Pty) Ltd and Satrix Investments (Pty) Ltd. The information does not constitute financial advice. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.