South African pension funds are finally increasing overseas exposure
The government increased the limit on offshore investment from 30 per cent to 45 per cent in 2022. But South African pension funds have failed to take advantage, until now (Nic Bothma/EPA-EFE/Shutterstock)
South African retirement funds are suddenly making large increases to their offshore allocations as investment managers spot market opportunities due to the war in the Middle East.
Changes to South Africa’s prudential laws in 2022 meant pension funds have been able to invest greater sums overseas for some time but they have only made small, incremental shifts.
But the change in sentiment reflects where managers are identifying opportunities, according to Janina Slawski, an investment consultant at Alexforbes, tells Asset Owners Exchange.
“The offshore allocation bias has risen from approximately 30–35 per cent pre-war to around 35–40 per cent by the second quarter of 2026,” Slawski said.
“Following the escalation of conflict in the Middle East, we have observed a rotation in commodity exposure, with the focus shifting from precious metals towards Brent crude oil, which predominantly offers offshore exposure,” Slawski said. In addition, physical AI (chips and memory) has gained traction, underpinned by large capital expenditures by so-called hyperscalers such as Google and Amazon.
The limit on offshore allowances was increased from 30 per cent to 45 per cent in February 2022 but South African retirement funds implemented only incremental changes.
According to the AlexForbes Manager Watch Survey 2025, 40 of 53 managers invested more than 30 per cent offshore, with an average of 33.5 per cent. Only eight managers exceeded 40 per cent as of December 2025.
“During 2025 and early 2026, precious metals, particularly gold and platinum, presented attractive earnings opportunities, supported by sustained elevated prices above $5,000 for gold and approximately $2,000 for platinum over much of the period, which supported domestic allocations,” Slawski said.
According to Slawski offshore equities are on average around 70 per cent allocated to the US, Europe, Japan and emerging markets.
Fixed income receives 10-20 per cent of allocations, comprising a mix of offshore bonds and credit. Some managers also include offshore property, while the remainder is generally held in cash.
According to the AlexForbes International Manager Watch survey, pension funds in South Africa prefer working with managers in their home market, with some of the largest allocations made to Ninety One, Orbis, Coronation, Schroders and SEI.
“According to the survey, the trend for large allocations is mainly towards larger South African-domiciled managers or offshore managers with local South African offices,” Slawski said.
South African allocations have shifted towards passive mandates for offshore investments, particularly given high active fees and the difficulty of outperforming the benchmark, with domestic managers preferred for active management, Slawski notes.
“Current allocations to offshore mandates via South African managers would be to large managers with substantial track records and sufficient resources to research offshore companies,” Slawski adds.
South African retirement funds are expected to increasingly invest with ‘transformed’ boutique managers due to South Africa’s Broad-Based Black Economic Empowerment policies, or risk losing mandates from retirement funds and state-public funds with strict compliance scorecards - or face poor governance scrutiny.
B-BBEE is a South African policy aimed at addressing historical inequalities by increasing the participation of black individuals in companies. A ‘transformed’ company is one which employs black South Africans in top-level decision-making roles
“It is expected that allocations will be made over time to boutique managers as they build up a track record. This trend will be driven by investors seeking to allocate to transformed managers, given that an allocation away from a domestic transformed manager to an offshore untransformed manager will worsen transformation measures in South Africa,” Slawski said.
Gary Wilson, principal officer at the $52mn South African Road Passenger Bargaining Council Retirement Fund, told AOX he prefers active mandates with both larger and boutique, smaller alpha managers.
“We use boutique managers for structural alpha advantage with smaller assets under management, with owner alignment and differentiated factor premia, in addition to established large managers for core balanced mandates requiring liquidity with AUM-backed stability,” Wilson said.
Motswedi Economic Transformation Specialists is a transformed domestic investment consultant and multi-manager on behalf of SARPBAC. A spokesperson said many South African retirement funds partner with them to preserve their B-BBEE scores. Black-owned or black-managed investment consultants and multi-managers primarily allocate to the domestic market, but they also delegate to “best-of-breed” offshore managers or use transformed South African asset managers that incorporate offshore allocations into their investment portfolios.
Points are allocated according to the B-BBEE scorecard rating companies on five pillars: ownership, management control, skills development, supplier development, and procurement, as well as socio-economic development efforts in black communities.
Meanwhile, larger funds or those who make limited use of an investment consultant will follow an RFP process; the balance will be awarded following a process curated by the fund’s investment consultant.
All investment consultants will need to advise their clients on offshore investments, especially since the allocation now represents a large share of the overall fund’s asset allocation, Slawski noted.
“The largest South African investment consultants, such as Willis Towers Watson, Riscura and Alexforbes, partner with offshore firms that have large manager research capabilities, or have established their own teams to do this,” Slawski notes. Smaller investment consultants will use a limited panel of managers or multi-manager capabilities in the offshore space.