By Kevin Nyaga
NAIROBI, Kenya, June 17 – The global business landscape is increasingly fraught with challenges. Rising operational costs, increased taxation, surging inflation, high interest rates, and diminished consumer purchasing power are placing substantial strain on the demand for goods and services.
A recent Central Bank of Kenya report highlights that private sector CEOs are deeply concerned about the prevailing macroeconomic instability, geopolitical tensions, and rising global commodity prices, which they fear could jeopardize their businesses. Amidst this turmoil, investors are compelled to find ways to safeguard their assets. While many choose to weather the storm with traditional investments, seasoned investors are turning towards diversification, particularly through alternative investments.
In recognizing the limitations of traditional investment strategies in today’s volatile environment, savvy investors are increasingly exploring alternative assets like venture capital, private equity, hedge funds, real estate, commodities, and collectibles. These alternatives are not only attractive for their potential to yield higher returns but also for their ability to provide a buffer against market volatility.
Institutional investors are at the forefront of this shift. According to a 2024 report by Clearwater Analytics, a global provider of SaaS-based investment management solutions, 55% of institutional investors surveyed plan to increase their allocation to alternative investments over the next five years. This statistic highlights a significant strategic pivot, as these investors recognize the importance of diversification and the potential for higher returns offered by alternative assets. The growing enthusiasm for alternatives reflects a broader trend in the investment landscape, where traditional asset classes are increasingly complemented, and sometimes even replaced, by non-traditional options to optimize portfolio performance.
While the Clearwater report focuses on American companies, the principles and success factors it identifies are equally relevant to the African context. Old Mutual Alternative Investments, a leading African private alternative investment manager, exemplifies this. Over the past two decades, Old Mutual has grown its assets under management in Infrastructure, Private Equity, Hybrid Equity, Infrastructure Debt, Diversified Credit and Impact Funds to over USD 7.4 billion. With a team of 91 investment professionals across six regional offices, they manage 23 funds investing in over 266 portfolio companies.
A notable example of success in alternative investments is within the infrastructure pillar. These investments span across the African continent, with a significant focus on digital infrastructure, clean energy transitions—including solar power—and improvements in mobility and logistics. Locally, notable investments include projects in road infrastructure and wind power generation. What makes these investments particularly remarkable is their ability to deliver competitive returns while simultaneously creating significant positive impacts on the communities and economies involved.
The ability to consistently deliver substantial returns and safeguard capital underscores the efficacy of alternative investments, especially in an economic landscape where traditional asset classes often experience increased volatility. As economic uncertainties persist, the appeal of alternatives continues to grow, promising not only stability but also significant growth potential.
Opportunities in the alternative investment space are burgeoning, and it is exciting to anticipate greater participation from East African investors. Embracing these investment avenues can provide much-needed stability and growth in an increasingly unpredictable economic climate.
The author is the Head of Alternative Investments at the Old Mutual Investment Group.