Rich South Africans moving their money out of the country
Wealthy South Africans are moving their money offshore to protect their assets from South Africa’s volatile macroeconomic environment.
With concerns over inflation, political uncertainty, a weakening rand, and fragile infrastructure, investors are rethinking traditional investment strategies and turning to alternative offshore opportunities.
This is according to experts from Westbrooke Alternative Asset Management, a multi-asset, multi-strategy manager and advisor of alternative investment funds and co-investment platforms.
This growing shift is particularly evident in the rising popularity of alternative asset classes, such as hybrid capital investments, which are now favoured over conventional listed markets.
The firm, in partnership with Rand Merchant Bank (RMB), recently launched the Westbrooke Dynamic Opportunities (WDO) UK Fund, which has already secured £155 million (R3.8 billion) for investment in hybrid capital transactions across the UK’s lower-middle market.
The fund’s success highlighted a broader trend among South African ultra-high-net-worth individuals and families.
It showed that South African investors are increasingly looking for hard currency returns that offer lower risk and better diversification.
“The traditional 60/40 portfolio allocation—60% equities and 40% bonds—is simply not fit for purpose anymore,” said Dino Zuccollo, Head of Investor Solutions at Westbrooke.
He noted that the correlation between stocks and bonds becomes strongly positive when global inflation exceeds 2.5%, which is where we are today.
“This means both asset classes tend to move in the same direction, undermining the protection diversification is supposed to offer.”
South African investors have been battered by years of market volatility caused by events such as the pandemic, international conflicts, trade disruptions, and ongoing domestic instability.
These pressures have prompted many investors to look abroad for assets insulated from local risks and currency depreciation while offering attractive returns.
“It isn’t portfolio theory alone which has driven the recent adoption of alternatives,” said Zuccollo.
“By investing in companies in the lower and middle market segments, we can exploit capital market inefficiencies and generate greater returns without taking on excessive risk. This is especially appealing in established, hard currency jurisdictions like the UK.”
Westbrooke’s expansion into the UK market has seen notable success. Since launching operations there in 2017, the firm has arranged around £750 million in deal value.
South African companies are also taking note
Its first UK Dynamic Opportunities Fund, launched in late 2022, delivered an 8% cash dividend and 15% annual return and has already returned over 35% of committed capital to investors.
The hybrid capital strategy allows investors to earn contractual, interest-linked yields, offering an inflation hedge, lower volatility compared to public markets, and access to the growth potential of UK businesses.
“The compelling side of this approach is that you’re well protected on the downside, despite the potential for higher returns,” Zuccollo explained.
He also noted that South Africans have historically lagged behind their global peers in terms of alternative investment adoption, but this is now changing.
“The level of knowledge and understanding has improved significantly, and Westbrooke has worked hard to make access to these investments easier.”
This trend of offshore diversification is also evident across major South African companies.
Invicta Holdings, chaired by billionaire Christo Wiese, recently revealed plans to generate 50% of its earnings outside South Africa within two years.
In its latest annual results, Invicta cited ongoing local challenges such as load shedding, deteriorating infrastructure, and regulatory inefficiencies as reasons for seeking more stable international revenue streams.
“Geographic diversification and the pursuit of sustainable earnings remain core pillars of our long-term strategy,” Wiese said.
Economists have also emphasised the need for diversified investment strategies.
Dawie Roodt, chief economist at the Efficient Group, has warned that keeping all assets in South Africa is risky given the current macroeconomic environment.
While he acknowledged that there are still investable opportunities on the JSE, he advised sticking to highly liquid stocks that can be sold quickly if needed.
Roodt recommended investing in rand hedge stocks, which are companies listed in South Africa that generate a large portion of their earnings in foreign currencies.
These include global players such as Naspers, Prosus, Richemont, Anglo American, AB InBev, BHP Group, and Glencore.
Additionally, with the local currency under pressure, Roodt suggested that investing in precious metals like gold, silver, and platinum can hedge against the rand’s depreciation and preserve wealth.
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