In this Q&A  Khoabane Phoofolo, Head of BlackRock Africa, discusses how through the local office, the team is bringing the breadth of BlackRock to investors across the continent. Khoabane Phoofolo joined BlackRock almost 20 years ago. He has worked across two continents and multiple investment divisions: from its retail iShares proposition to US pensions and endowments. He then took the opportunity to join the Cape Town office and lead BlackRock’s Africa business to help investors across the continent, using its global reach to offer investment solutions and strategies that meet the needs of local investors.

Q: How is BlackRock supporting institutional investors across Africa? 

BlackRock has been supporting investors in Africa for more than 25 years¹. We now work with clients in 13 different countries across the continent to help millions of people invest to build savings that serve them throughout their lives. We pair BlackRock’s global asset management expertise along with our intimate understanding of the local African markets to provide access to investment solutions that align with their long-term objectives.

This isn’t just about our financial capabilities though – it is also about how we can collaborate with clients and provide knowledge transfer and expertise. For example, we partner with the Association of Black Securities and Investments Professionals (ABISP), to give Emerging Managers in South Africa the opportunity to attend the BlackRock Educational Academy to convene with peers across the globe. This reflects our purpose as a business: helping people meet retirement goals, making investments accessible, and supporting local communities.

Q: What structural trends in the current market are affecting institutional investors?

We expect continued challenges in terms of slower economic growth and higher-for-longer interest rates. Consequently, investors may need to rethink their strategic asset allocations and take a more dynamic approach to managing portfolios. This may require more active solutions that incorporate private markets and other alternative asset classes. Key to this is considering the global mega-forces that are likely to impact portfolios in the years and decades ahead, such as the low-carbon transition, digital disruption and demographic divergence.

Q: Which of these mega-forces are investors discussing the most?

Over the past decade, there has been huge interest in sustainable investing, particularly in relation to the low-carbon transition. More recently, we’ve seen more interest in digital disruption, with AI becoming the pervasive topic of the past year. Regardless of these shifts, it’s clear these trends are structurally significant and likely to be persistent, so people need to have a longer-term framework for their portfolio planning.

Another shift we’ve witnessed over the last 10 years is how investors are looking at their offshore allocation. With the incremental increase of offshore allocation in portfolios, most recently up to 45% according to Regulation 28 of the Pension Funds Act, investors are looking at portfolios more holistically, as the offshore allocation limits have expanded, investors have begun looking at other asset classes e.g. Alternatives. We’ve witnessed shifts from global equity allocations to more Multi-Asset approaches, alongside an increased importance on technology to help investors harness global exposures and pair them with local assets.

Q: What role can alternative investments play in offshore portfolios and how is this asset class evolving?

Market dynamics have shifted towards private markets, which have delivered better returns over the past decade than publicly listed markets. But there is a risk component to be taken into account, given the lack of liquidity in many private markets.

Investors are increasingly using a range of alternative investments, including infrastructure, private credit, private equity and liquid alternatives, such as hedge funds. These can add different risk-return benefits as part of a dynamically managed diverse portfolio. Private debt, for example, may offer reliable yields for pension schemes. Some hedge fund investments can minimize volatility in highly unpredictable markets, offering ballast in a portfolio. As the market for alternative investments expands, we’re seeing a growing secondary market emerging.

Q: How could alternative assets help investors take advantage of the transition to a low-carbon economy?

Investments into climate infrastructure can be an effective way for investors to reposition holdings and gain exposure to the low-carbon economy. These tend to be highly selective investments, with investors able to hone in on one particular segment of the market. This allows them to drive specific portfolio outcomes, be it capturing exposure to the clean energy sector or longer-term returns and outperformance.

Q: How are technology and digital innovation shaping the institutional investment landscape?

As investors across South Africa increase their offshore investments, technology is becoming crucial for constructing and managing Multi-Asset portfolios that incorporate global and domestic holdings. Technology can help analyse risk factors across these different areas.

There is also the use of digital innovation in investment processes like machine-based learning. Our Systematic Active Equities team has been using these technologies for decades to analyse various factors – be it growth versus value or small cap versus large cap exposure – and using the findings to help drive enhanced returns. Now we have the opportunity to expand on this with AI.

Q: How are institutions in South Africa integrating diversity, equity and inclusion (DEI) principles into their investment strategies?

Given South Africa’s history, there is a long-standing commitment to equality and diversity among institutional investors. Unsurprisingly, DEI is a central part of both corporate structures and their investment propositions. For this reason, a number of the largest companies have created emerging manager programmes to support the next generation of asset managers and ensure this reflects the country’s diversity. BlackRock is committed to delivering broad stakeholder engagement on this issue, to ensure investments align with societal goals and meet the mandates of pension and institutional investment clients.

Q: Looking ahead, what opportunities do you see for investors in Africa?

Global investment markets are opening up to investors across Africa. There is now far greater access to a wide range of investment solutions, and partnering with institutions like BlackRock could help deliver the outcomes investors are looking for. At BlackRock, we aim to be a trusted partner for leading financial institutions across the continent. Being one of the world’s largest asset managers means we can offer technology, expertise and access to the full range of asset classes, from cash to alternatives. As head of BlackRock Africa, I’m excited about the huge potential of this region and the role we can play in bringing global expertise to the local African market, helping clients meet their long-term investment goals.

¹BlackRock, as of 31 March 2024