At current rates of carbon dioxide emissions, the world is going to exceed its carbon budget – the maximum limit on emissions that could hold global warming to 1.5⁰C – in just two years, a group of UK scientists writing in Earth System Science Data warned recently.[1]
Despite efforts over more than a decade, fossil fuels still produce 80% of global energy supply, releasing carbon dioxide and methane into the atmosphere, which is accelerating global warming. Transitioning to renewable energy sources is essential to keep these emissions in check. According to the World Economic Forum,[2] global renewable energy capacity grew by 15.1% in 2024 – but it should be growing at 16.6% every year to 2030 to reach global goals.
This is where the private sector plays a role. Mobilising the vast amounts of money needed to build new energy generation facilities quickly is far more than any individual government, company or bank can provide. It requires innovative solutions, one of which is sourcing funding from private credit markets.
Private credit is a growing, non-traditional asset class that has similar characteristics to sovereign bonds but offers the potential for greater diversification and higher returns.
At the beginning of this year, Moody’s forecast that the global private credit market would almost double to US$3 trillion by 2028 from just over $1.5 trillion in 2023, encouraged by lower interest rates, declining default rates and solid economic strength.[3]
Private credit explained
Private credit refers to unlisted assets that straddle a wide spectrum of the economy. Asset categories include sovereign and SOE credit (borrowing by large or small governments for various reasons such as specific projects or to obtain hard currency); large, medium and small corporate credit (e.g. bilateral loans with terms relating to tenors, securities, and covenants that suit the two participating parties); and private asset-backed finance (e.g. commercial property finance, project finance such as for the Renewable Energy Independent Power Producer Programme, or funding pools of financial assets such as yellow machinery); and trade and commodity finance.
Private credit is a long-established, broad and deep asset class.
Evolution of private credit
Banks have dominated private credit in SA but, for various reasons, investment industries are playing a more active role in these assets.
Bank balance sheets are limited and increasingly unable to meet the demands of borrowing markets as a whole. Furthermore, bank regulators require larger amounts of capital to be held by banks, especially for long-dated assets that are ill-suited to banks’ shorter-dated sources of funding. Investment industries enjoy long-dated sources of funding that can term-match the borrowing demands of the market. Unlike the banks, pension funds have very long-dated liabilities, at 15-20 years. The liabilities of life insurers are even longer, at up to 70 years. This enables them to extend long-term loans, on which they can earn very attractive returns.
The investment industry has built asset sourcing, risk-assessment, portfolio management and recovery skills that allow investors to participate in and price for the characteristics of private assets.
Banks often work with their partners within the investment industries by inviting investors into deals to effectively “extend the banks’ balance sheets” while retaining client relationships on non-balance sheet intensive components such as hedging or transactional banking.
Features of private credit portfolios
Private credit portfolios tend to be “low beta”, which means they typically have low correlation with traditional markets, meaning their performance tends to remain stable even when broader markets fluctuate. For that reason, they often underpin hedge fund strategies that aim to deliver low volatility asset portfolios (portfolios that have consistent values) throughout various economic cycles.
Due to their use of variable rates, private credit serves as a primary hedge against inflation and the interest rate cycle. Most fixed-rate and public assets are vulnerable to valuation changes as inflation and interest rate cycles oscillate.
Private assets are by nature less liquid than public tradeable assets, but credit portfolios are highly cash generative, from both coupons and principal repayments, and this cash is paid out in line with predictable contractual commitments made by borrowers.
Due to the breadth and depth of credit markets, they immediately provide diversification from the more traditional listed markets. In many developing markets, including SA, listed bond markets are very concentrated around a small cohort of typically sovereign and bank issuers. There are only eight borrowers in the JSE All-Bond Index, mainly big SOEs and banks, that form 95% of the market. Private portfolios provide diversification to the investor.
There is typically a price pick-up available for private credit investors over the listed market. This rewards the investor for the lower levels of liquidity (vs public markets) and suits investors trying to “monetise” long-dated sources of funding.
STANLIB Khanyisa Energy Transition Fund
For all these reasons, STANLIB Asset Management launched the STANLIB Khanyisa Energy Transition Fund eighteen months ago. It was seeded with more than R3 billion of REIPPP assets contributed by Standard Bank and Liberty (STANLIB and Liberty are subsidiaries of Standard Bank), enabling it to offer scale and diversity from the outset. It can gear by up to 50% of the fund value to enhance returns.
The fund is constructing a diversified portfolio of investments which support SA’s transition from fossil fuels to sustainable energy sources, while generating strong risk-adjusted returns for investors.
Among other qualifying assets, the fund will pursue a number of opportunities:
- Renewable energy: The fund directs capital towards wind and solar generation assets and hydroelectric dams – not just as investments but as vital components of a sustainable energy grid. By supporting projects that harness SA’s abundance of sustainable natural resources, such as sunshine and wind, the fund contributes to reducing the nation’s carbon footprint while enhancing energy security.
- Decentralised energy: Rooftop solar installations, microgrids and local energy co-operatives empower citizens to make choices about where they source their energy. Through investments in decentralised energy solutions, the fund fosters resilience at the local level, empowering communities to generate their own clean power and reducing reliance on centralised, fossil fuel-based infrastructure.
- Balancing with gas: The transition away from coal cannot happen overnight. Natural gas, cleaner than coal and oil, offers an intermediate step in the journey towards renewables. The fund invests in gas pipelines, terminals, and storage facilities. Recognising the need for a balanced approach during the transition period, the fund strategically incorporates natural gas into its portfolio to serve as a bridge fuel, providing reliable energy while mitigating environmental impact.
- Critical minerals: Lithium, cobalt, and rare earth elements are the building blocks of renewable technologies. By investing in the responsible sourcing and production of these critical minerals, the fund will promote the growth of the renewable energy sector while upholding environmental and social standards, mitigating the negative impacts traditionally associated with mineral extraction.
- Green hydrogen: Hydrogen is a fuel that produces only water vapour when it burns. Producing it is energy-intensive, but if that energy is renewable then hydrogen becomes a remarkable prospect. The fund invests in the research, infrastructure, and adoption of this clean fuel. Recognising the potential of green hydrogen as a versatile and zero-emission energy carrier, the fund invests in projects and technologies aimed at scaling up its production and integration into various sectors, including transportation, industry, and energy storage.
- The transport revolution: The fund invests in battery technology, electric vehicle infrastructure, and sustainable mobility solutions. By backing the electrification of transportation, the fund accelerates SA’s transition away from fossil fuel-powered vehicles, reducing emissions and improving air quality while creating new opportunities for innovation, employment and economic growth.
The fund aims to attract long-term investors such as retirement funds, life insurers, and fixed income managers. Their commitment extends beyond financial gains, reflecting a dedication to leaving a sustainable legacy. By drawing in institutional investors with a focus on the long term, the fund is mobilising stable capital to further its mission, aligning investor interests with the broader goal of promoting sustainability and addressing climate change.
The STANLIB Khanyisa Energy Transition Fund’s investment mandate contributes directly to the United Nations’ Sustainable Development Goals (SDGs) related to clean energy, climate action, and economic growth. By targeting investments that address key sustainability challenges, the fund generates a positive impact across multiple dimensions, aligning its activities with the broader international agenda outlined in the SDGs and contributing to global efforts to achieve a more sustainable and equitable future.
Over time, the Khanyisa Energy Transition Fund aims to raise $1 billion from investors. It will expand its horizons to cover the whole of Africa, leveraging its experience and expertise to drive sustainable development and climate action across the continent.
Conclusion
Private credit is not difficult to understand, but the skills to package different elements together to achieve optimal risk-adjusted returns only be found among professional fund managers. That makes it essential to be selective in choosing a manager.
Institutional quality investment managers should have an independent risk function that scrutinises each asset independently from the portfolio. By their very nature, private assets are more “opaque” than public assets. It is critically important to select institutional quality portfolio managers that can credibly provide frequent portfolio reporting and asset valuations.
It is essential that asset managers are able to risk assess and price private credit assets. Private credit assets are often not accompanied by public ratings and, unlike in public markets, their pricing visibility is often non-existent at the time of asset origination.
Due to the illiquid nature of private assets, an investment manager needs to have a proven skill set in asset recovery. This means that if an asset defaults or becomes distressed, the asset manager should have the skills to foreclose and recover as much of the principal investment as is possible and allowed by the available security that underpins the asset.
STANLIB’s Private Markets team is one of the largest and best-resourced credit teams in the African continent. The team manages R53 billion in assets and has originated transactions worth over R120 billion. Among other portfolios, this team also manages the STANLIB Khanyisa Impact Investment Fund.
[1] https://www.weforum.org/stories/2025/04/renewable-energy-transition-wind-solar-power-2024/
[1] https://www.moodys.com/web/en/us/insights/credit-risk/outlooks/private-credit-2025.html
Disclaimer
STANLIB Asset Management (Pty) Ltd, an authorised financial services provider (FSP) under the Financial Advisory and Intermediary Services Act (FAIS), Act No. 37 of 2002 (Licence No. 719).
