Why SA advisers must look beyond listed markets

As South African investors continue to seek refuge offshore, a growing number are looking past traditional listed equities and bonds toward a quieter, less crowded corner of the global market: private markets. Dino Zuccollo, Head of Investor Solutions at Westbrooke Alternative Asset Management, explains why the shift is happening, where the real value lies, and what advisers need to know before recommending private market exposure to their clients.

Westbrooke specialises in private market investments across the UK, US and South Africa. What advantages do private market opportunities offer compared to traditional offshore investments such as listed equities and bonds?

The most important distinction is structural. Listed markets are efficient, heavily analysed and prone to sentiment-driven volatility. Returns are largely a function of market beta. Private markets, particularly in the lower mid-market segments where we operate, are fragmented, under-institutionalised, and operationally complex. That complexity is where value is created.

In our UK Private Equity strategy, for example, we focus on businesses with EBITDA below £10m. There are approximately 196 000 such businesses in the UK, yet the segment attracts very little institutional capital. Larger PE funds cannot meaningfully deploy their mandates at that scale. This structural inefficiency creates better entry valuations, less competitive deal processes, and more room to add genuine operational value.

The trade-off, of course, is liquidity. Private market investments are long-term capital commitments, and they should be sized accordingly within a broader portfolio. But for investors who can match their time horizon to the asset class, the risk-adjusted return premium is compelling.

With capital preservation being a central part of Westbrooke’s investment philosophy, how do you manage risk while still targeting attractive long-term returns?

Our investment philosophy, codified in what we call the Westbrooke Investment & Risk Philosophy and Approach (WIRPA), is designed to generate asymmetric returns while holding capital preservation as the core principle. To once again use our UK Private Equity as an example, we focus on acquiring structurally advantaged businesses at sensible valuations. We assume conservative gearing assumptions, and drive value through operational improvement and cash generation rather than financial engineering. In practice, this means we prioritise businesses with high gross margins, recurring or highly predictable revenue, low capital intensity, and strong cash return on assets managed. These characteristics create resilience across economic cycles and give us downside protection before we even begin to deploy any growth strategy. In addition, a key differentiator of Westbrooke is that we invest meaningful capital alongside our clients in each of our funds and this shapes each of our investment decisions.

As many advisers are seeking greater diversification for their clients, do you see offshore alternative assets complementing a traditional portfolio?

Absolutely, and the data supports the case strongly. KKR research indicates that average HNW allocations to private markets in developed markets globally sit at 15 – 22%. Our estimate is that South African HNW investors are allocating well below 10% on average. That gap represents both underexposure and a significant opportunity. 

Private markets complement a traditional portfolio precisely because they behave differently. They are not marked to market daily, they are not correlated to listed equity or bond indices, and their return drivers (predominantly cashflow generation and operational improvement) are largely independent of public market sentiment.

For advisers, the most useful framing is one of building blocks. Offshore private market exposure is not a replacement for liquidity-appropriate holdings. Clients still need access to listed instruments for short- to medium-term requirements. But for the long term, the  illiquid portion of a portfolio – the capital that does not need to be touched for two to five years – private markets can meaningfully enhance risk-adjusted returns and reduce overall portfolio volatility.

For advisers considering offshore private market investments for their clients, what key factors should they evaluate?

There are several dimensions that matter, and the current environment makes each of them more important. First, alignment. How much capital has the manager co-invested alongside clients? A credible GP commitment – not a nominal 1% or 2%, but a meaningful stake – fundamentally changes the incentive structure.

Second, you need to understand where the target returns come from. Strategies that rely heavily on multiple expansion or leverage are much riskier. We seek businesses where most of our return attribution comes from the existing underlying cashflow of the business itself; that creates a conservative floor and reduces dependence on exit conditions.

Third, market positioning and deal sourcing. In private markets, the ability to access off-market, proprietary deal flow is a genuine edge. 

Fourth, track record and operational depth. How long has the manager been doing this, and in which parts of the cycle? Westbrooke was founded in 2004, and we have a heritage as shareholders and operators of assets. This long track record of operational history impacts how we manage our investments and enables us to operate as partners and not just capital allocators.

Finally, structure and reporting. Advisers should understand the vehicle structure, the draw-down mechanics, lock-up periods, and how performance is reported. Transparency and governance are non-negotiable, particularly for offshore structures.

Westbrooke recently announced the successful closing of a co-investment in the management buyout of Radiocoms, the UK’s leading critical communications provider. What was the rationale behind this, and are there similar moves in the pipeline that you can mention?

Radiocoms is an excellent illustration of the type of business we seek: a clear market leader in a structurally growing, non-discretionary sector, with strong recurring revenue and high barriers to entry. The business designs, integrates, installs and maintains secure mission-critical communications networks for essential-service customers such as defence, blue light, retail, transport and energy, where reliability and security are paramount. It serves over 600 customers, with systems that require annual maintenance and refresh cycles every four to five years. That creates a highly predictable, recurring revenue base that is largely insulated from broader economic volatility. 

In terms of the pipeline, we are actively working on several similar opportunities. We cannot name specific transactions ahead of announcement, but our focus remains consistent: UK-headquartered private businesses in niche, structurally advantaged sectors, with £4m – £10m EBITDA, high cash conversion, and management teams with genuine ambition for growth.