Despite the private capital industry’s proven track record, many investors still view private equity (PE) and venture capital (VC) as inherently risky investments. Two of SAVCA’s board members say this conversation around risk in private markets is long overdue for reframing.
Thato Tsita, partner at Tamela Capital Partners, explains that risk in private markets differs fundamentally from that experienced in public markets. “In listed markets, risk is often equated with volatility, whereas in private markets it is actively managed, priced and transformed into value,” she says. “Illiquidity, leverage and concentration are not weaknesses but deliberate design features that allow private market funds to convert uncertainty into long-term performance.”
Evolving perceptions of risk
For many investors, perceptions of private capital risk are shaped by its history. As Tsita points out, early PE activity was often associated with high leverage and corporate raiding, fuelling misconceptions about speculation. “The Global Financial Crisis was a turning point,” she says. “Enhanced governance, improved reporting and stronger alignment between fund managers and investors have since made private markets far more transparent and resilient.”
Speaking specifically to VC, Antonia Bothner, capital markets lead at Endeavor South Africa, says there is a growing recognition that risk in the asset class is not purely about volatility or uncertainty, but about intentional exposure to innovation cycles and long-term value creation. “The distinction between the risk of loss and the risk of variance is often overlooked, particularly when comparing public and private markets.”
Bothner adds that as information quality and secondary markets mature, the risk profile of venture investing has evolved. “What was once seen as ‘black box’ exposure is now understood as a differentiated and diversifying asset class. Investors have better tools to benchmark outcomes and assess liquidity,” she says. “Disciplined portfolio construction and diversification across stages, sectors and geographies make venture exposure a complementary component of broader portfolios.”
The illusion of safety in public markets
Despite mounting evidence, listed markets continue to attract a disproportionate share of capital. Tsita believes this is partly due to familiarity and the visibility of public market pricing. “Public markets display daily price movements that give the illusion of control and liquidity,” she says. “But disclosure alone does not eliminate risk – as high-profile corporate failures such as Steinhoff have shown. Governance, alignment and accountability are what truly determine resilience.”
In South Africa, structural and regulatory developments are slowly helping to rebalance investor perception. Tsita notes the amendments to Regulation 28 of the Pension Funds Act that permit pension funds to allocate up to 15% to private market funds and up to 45% to infrastructure. “This recognises private capital’s critical role in growth and diversification,” she says. “The JSE’s shrinking pool of listings and high concentration risk have created a structural need for alternative assets. Private market funds provide exposure to unlisted companies and sectors that traditional markets can’t access.”
Where uncertainty becomes advantage
For Bothner, risk in VC should not be viewed as something to avoid but as a source of opportunity. “Backing exceptional founders in scalable markets often produces asymmetric upside that more than compensates for early-stage uncertainty,” she explains. “Innovation inherently involves uncertainty, but when capital is allocated to founders solving large structural problems, the potential returns are transformative.”
She adds that successful venture investing relies on patient capital and active support. “At Endeavor, our research shows that founders who receive mentorship from experienced entrepreneurs are two to three times more likely to scale their businesses. Picking the right founders and partnering with the right funds is even more critical than in public markets, where return dispersion is much lower.”
Closing the perception gap
Both Bothner and Tsita agree that greater investor education is essential to unlocking private capital’s potential. “The idea that private capital is inherently risky belongs to a bygone era,” says Tsita. “Today, risk in private market funds is intentional, structured and manageable.”
Bothner concludes: “We need to communicate that private markets are not speculative by nature – they are long-term, data-driven and complementary to public market exposure. For investors seeking meaningful returns and diversification, understanding how to harness and manage this form of risk is the real opportunity.”
