Thato Tsita | Partner | Tamela Capital Partners | mail me |
Despite the private capital industry’s proven track record, many investors still view Private Equity (PE) and Venture Capital (VC) as inherently risky investments. However, this perception does not fully reflect how private capital markets actually function.
This conversation around risk in private capital markets is long overdue for reframing. Risk in private capital markets differs fundamentally from that experienced in public markets.
“In listed markets, risk is often equated with volatility. In contrast, investors in private capital markets actively manage, price and transform risk into value. Illiquidity, leverage and concentration are not weaknesses. Instead, they are 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. Early PE activity often relied on high leverage and corporate raiding. Consequently, this history fuelled misconceptions about speculation in private capital markets.
The Global Financial Crisis was a turning point. Enhanced governance, improved reporting, and stronger alignment between fund managers and investors have since made private markets far more transparent and resilient.
There is growing recognition that risk in the asset class is not purely about volatility or uncertainty. Instead, it reflects 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. This is particularly true when comparing public and private markets. 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 now have better tools to benchmark outcomes and assess liquidity.
– Antonia Bothner, Capital Markets Lead at Endeavour South Africa
Moreover, 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 trend stems partly from familiarity and the visibility of public market pricing.
Public markets display daily price movements. As a result, they give the illusion of control and liquidity. However, disclosure alone does not eliminate risk. High-profile corporate failures such as Steinhoff have demonstrated this clearly. Governance, alignment and accountability are what truly determine resilience.
In South Africa, structural and regulatory developments are slowly helping to rebalance investor perception. For example, I note the amendments to Regulation 28 of the Pension Funds Act. These amendments 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. The JSE’s shrinking pool of listings and high concentration risk have created a structural need for alternative assets. Consequently, private capital markets provide exposure to unlisted companies and sectors that traditional markets cannot access.
Where uncertainty becomes an advantage
Risk in VC should not be viewed as something to avoid. Instead, investors should treat it as a source of opportunity within private capital markets. Backing exceptional founders in scalable markets often produces asymmetric upside. As a result, this upside more than compensates for early-stage uncertainty.
Innovation inherently involves uncertainty. However, when capital is allocated to founders solving large structural problems, the potential returns are transformative. Successful venture investing relies on patient capital and active support.
At Endeavour, our research shows that founders who receive mentorship from experienced entrepreneurs are two to three times more likely to scale their businesses. Therefore, 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
Greater investor education is essential to unlocking private capital’s potential. The idea that private capital is inherently risky belongs to a bygone era. Today, risk in private market funds is intentional, structured and manageable.
We need to communicate that private markets are not speculative by nature. Instead, they are long-term, data-driven and complementary to public market exposure. Therefore, for investors seeking meaningful returns and diversification, understanding how to harness and manage this form of risk is the real opportunity.
