Annual 2025 - (released February 2026)
SA's quarterly Private Equity & Venture Capital magazine
Taking stock of Private Capital Markets
by Khanyisile Malebe
Setting the scene: macro tailwinds reshape investor thinking
As investors look ahead to 2026, South Africa enters the year with a more supportive macroeconomic backdrop than in the recent past. A stronger rand (up 13% against the dollar over the past year), easing inflation, and a lower interest rate environment have helped stabilise business conditions and improve sentiment across capital markets. These factors, combined with improved electricity availability, have reduced input costs for companies and created a more favourable operating environment.
Public capital markets reflected this improvement during 2025, with strong equity performance from the JSE All Share Index, which delivered a 46.4% return for the year. This was driven largely by mining stocks and the global gold rally, with the gold price exceeding $4000 an ounce for the first time. While listed capital markets are expected to remain resilient, investors are increasingly reassessing portfolio diversification, prompting a renewed focus on private capital markets as a source of differentiated and potentially higher long-term returns.
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Private market activity: momentum with caution
Private market activity in 2025 was characterised by selective dealmaking rather than broad-based expansion. Infrastructure and utilities continued to dominate transaction volumes1, reinforcing South Africa’s role as a key destination for renewable energy and industrial modernisation capital in Africa. Financial services also remained a cornerstone sector, reflecting both domestic demand and regional expansion opportunities.
Despite this activity, fundraising conditions remained challenging. Fundraising cycles lengthened, capital became more selective, and valuation sensitivity increased2. At the same time, exit activity began to accelerate, driven by both strategic sales and secondary transactions, signalling the early stages of improved liquidity across portfolios in private capital markets.
Key sectors shaping private capital deployment
Infrastructure remains one of the most attractive sectors for private capital in South Africa, supported by long-dated cash flows, inflation-linked revenues, and strong alignment with the Government’s development priorities. Transport, logistics, water and energy infrastructure continue to draw both local and international investors, particularly where projects benefit from public-private partnerships and development finance support.
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Renewable energy continues to be a core focus area, underpinned by South Africa’s structural power deficit and the government’s policy support for private power generation. Utility-scale renewables, battery storage and distributed energy solutions are attracting sustained investment as businesses and municipalities seek energy alternatives and security. The sector also benefits from growing appetite for climate-aligned investments and blended finance structures that enhance risk-adjusted returns.
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Data centres are emerging as a high-growth investment theme, driven by accelerating digitalisation, cloud adoption and demand for local data sovereignty. South Africa’s role as a regional technology hub, combined with improving energy availability and fibre infrastructure, positions the country as a key destination for data centre investment. While capital-intensive, the sector offers lucrative long-term returns and increasing interest from global strategic and infrastructure investors.
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Private credit gains prominence
One of the most significant structural shifts expected to continue into 2026 is the growth of private credit. In South Africa, private credit emerged more visibly between 2020 and 2022, as banks tightened lending standards and businesses sought alternative sources of capital. By 2025, the asset class had gained broader acceptance among institutional investors.
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In 2026, private credit is likely to attract further inflows as investors prioritise contractual cash flows, downside protection and more predictable liquidity profiles. While return potential is typically lower than private equity, private credit’s flexibility in structuring, shorter duration and lower volatility makes it an increasingly attractive complement within diversified private market portfolios.
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Private equity: liquidity remains a challenge
Private equity continues to offer the prospect of higher long-term returns, but liquidity constraints remain a defining factor. Extended fund lives and muted distributions over recent years have placed pressure on investors, particularly those managing allocation limits and cash-flow planning.
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In response, private equity firms are exploring alternative liquidity solutions. Globally, continuation funds have become a common tool, allowing general partners to transfer mature assets into new vehicles while providing optional liquidity to existing investors. In South Africa, private equity firms are increasingly recognising the opportunity to create liquidity through permanent capital vehicle structures, which offer greater flexibility than traditional continuation funds.
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Permanent capital vehicles allow investors to achieve liquidity while enabling those with conviction in an asset’s long-term growth to maintain their exposure. At the same time, they reduce pressure on private equity firms to exit assets at unfavourable valuations, a common constraint of traditional fund structures. While still nascent locally, permanent capital vehicle structures represent a potential evolution in South Africa’s private equity landscape.
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Actively Managed ETFs: unlocking liquidity in private equity allocations
Direct private equity investment by South African pension funds is limited by Regulation 28 of the Pension Funds Act, which caps exposure at 15%. In practice, many pension fund managers are not fully utilising this allowance due to operational challenges like fee structures. As a result, institutional investors are increasingly turning to actively managed ETFs to address liquidity while retaining long-term private market exposure. These vehicles provide liquidity for private equity investments, reducing pressure on private equity firms and enabling continued access to attractive private market returns without heightened liquidity risk.
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Conclusion: a more balanced private capital market
The private capital outlook for 2026 is defined more by balance than turbulence. Investors are operating in a market shaped by improved macro stability, heightened selectivity, valuation discipline and liquidity awareness. The South African private capital market in 2026 offers compelling opportunities through a range of investment prospects across infrastructure, renewable energy, digital assets and growth-oriented businesses. Careful attention to key trends, such as the rise of private credit, evolving exit strategies, and sector-specific growth themes, will enable investors to reassess portfolios and capitalise on value-creation opportunities.
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Malebe is a Corporate Financier | PSG Capital.
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1 https://www.africaprivateequitynews.com/
2 https://www.avca.africa/media/jpspd4gb/avca25-14-apca-q3_3.pdf?id=a0SP3000003QzsX
