Infrastructure naturally enough featured large in the 2026 Budget, much as it was also highlighted in the State of the National Address.
The Finance Minister said that government plans R1.07 trillion in public-sector infrastructure spending over the next three years, with 54.1% (R577.4 billion) delivered by state-owned companies and public entities, supported by budget allocations, own revenue and private investment.
This investment focuses in particular on removing constraints in transport, energy and water, boosting growth and employment.
Reforms include strengthening delivery, including updated public-private partnership (PPP) regulations and the creation of an Infrastructure Finance and Implementation Support Agency.
In the process, government is making it easier for the private sector to get involved. So, what should trustees know about infrastructure investment?
For institutional investors such as pension funds, infrastructure investment represents real, yield-generating assets that produce steady, inflation-linked income streams over multi-decade horizons. Infrastructure bridges the worlds of finance and development, offering exposure that is both defensive and impactful.
Key national priorities, such as articulated in the National Infrastructure Plan 2050 and the Just Energy Transition Investment Plan, aim to crowd-in private and institutional capital alongside Development Finance Institutions (DFIs) such as the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation (IDC), Trade & Development Bank (TDB), and the African Development Bank (AfDB). Pension funds, therefore, have a strategic role in bridging the divide between public need and private capital.
It is worth noting that, globally, institutional investors manage more than US $1.3 trillion in infrastructure assets. In South Africa, however, allocations remain below 5 % of total pension assets – despite Regulation 28 now explicitly permitting exposure of up to 45 % in infrastructure through domestic and African alternatives. The country’s estimated R 1.4 trillion infrastructure gap by 2030 underscores both the investment need and the opportunity for long-term capital to play a catalytic role.
Developmental significance
Infrastructure is not only financially resilient; it is economically enabling. Each rand invested in well-governed projects has a multiplier effect through job creation, SME participation, and improved service delivery.
For South African trustees, infrastructure investment is both a fiduciary strategy and a nation-building tool. It allows funds to match long-term liabilities with assets that generate stable returns while contributing tangibly to South Africa’s development priorities.
The advantages of infrastructure investment
a. Stable, predictable cashflows
Many infrastructure projects are underpinned by long-term contracts, regulated revenue models, or government concessions. This ensures steady, visible income streams – often indexed to inflation – that match the fund’s future pension obligations.
Example: Renewable-energy Independent Power Producers under 20-year Power Purchase Agreements (PPAs) with Eskom or municipalities deliver stable CPI-linked cashflows regardless of short-term market fluctuations.
b. Inflation protection
Infrastructure assets provide natural hedges against inflation, as tariffs or user fees typically escalate with CPI. This protects real returns and preserves members’ purchasing power – a key advantage in high-inflation environments.
c. Portfolio diversification
Returns from infrastructure are weakly correlated with traditional equities and bonds. Allocating even a small percentage to the asset class can reduce overall portfolio volatility and improve risk-adjusted performance.
d. Socioeconomic and ESG impact
Infrastructure investing supports tangible development outcomes such as electrification, water access, education, healthcare, and job creation. It allows funds to align with the FSCA’s responsible investment principles, integrate ESG factors, and demonstrate measurable social value.
e. Long duration and liability matching
Infrastructure assets typically have operating lives of 20–30 years. As mentioned above, this long duration mirrors the liability profile of pension funds, making it ideal for asset-liability matching (ALM) strategies.
f. Competitive, risk-Adjusted returns
Well-structured South African projects have achieved:
- Senior debt: CPI + 4%+
- Mezzanine: CPI + 6% +
- Equity: 11–15 % IRR (real)
These returns are inflation-beating, defensive, and often less volatile than listed market alternatives.
The infrastructure profile
Despite its appeal, infrastructure requires patience, governance capacity, and careful due diligence. Trustees must manage a set of distinct risks.
a. Illiquidity
Infrastructure investments are typically long-term and unlisted, meaning capital is locked up for 7–15 years. This limits flexibility to rebalance portfolios or exit early – making position sizing critical.
b. Complexity and governance requirements
Project structures often involve multiple counterparties, detailed contracts, and evolving regulations. Funds must ensure strong governance, capable advisors, and transparent reporting to mitigate operational risk.
c. Political and regulatory risk
Policy shifts, tariff disputes, or delays in approvals can affect project viability. Trustees must assess regulatory consistency and counterpart creditworthiness, especially in PPPs or state-linked projects.
d. Construction and operational risk
Greenfield projects face risks around cost overruns, delays, or technical underperformance. While insurance and Engineering, Procurement & Construction (EPC) guarantees can mitigate this, they require experienced oversight and well-structured contracts.
e. Valuation and transparency
Private assets are appraised periodically rather than priced daily, which can make performance reporting and benchmarking challenging. Robust valuation policies and independent audits are essential for accountability.
f. Concentration and pipeline risk
South Africa’s infrastructure market is still developing. Deal flow can be uneven, and overexposure to a single sector (eg energy) may amplify portfolio risk.
Risk mitigation and best practice for trustees
To balance opportunity with prudence, trustees should:
- Start small – pilot with 1–3 % of assets to test governance processes.
- Diversify by sector and stage – mix greenfield and brownfield exposure.
- Select credible managers – ensure proven track record, ESG systems, and transparent fee structures.
- Use blended finance – partner with DFIs or development funds to share risk.
- Maintain oversight – require quarterly performance and ESG reports.
- Benchmark regularly – compare returns against CPI + targets and peer funds.
Sound governance converts potential pitfalls into manageable risks that reward patience and discipline.
Infrastructure investments perform best when:
- Policy frameworks are stable (eg the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), the National Infrastructure Plan (NIP) 2050).
- Revenue models are contracted or regulated.
- Experienced managers and DFIs share risk.
- Trustees commit for the long term, viewing infrastructure as a strategic, not tactical, allocation.
When these conditions are met, infrastructure becomes a low-volatility core allocation that enhances portfolio resilience.
Closing thought
Infrastructure is neither a guaranteed win nor an excessive risk – it is a strategic long-term partnership between savings and the real economy. For South African pension funds, success depends on balancing patience with governance, and purpose with performance. When done right, infrastructure investing becomes the foundation of both financial stability and national renewal.
ENDS
Ed’s note: To stay updated with the infrastructure conversation, follow EBnet.Stream’s podcast series: Inside Private Markets, where we demystify private market investing for South African investors by unpacking the fundamentals, opportunities, and risks of these markets – such as private equity, venture capital, and infrastructure – while highlighting their potential for wealth creation and economic impact in South Africa.
