LONG CAPITAL: The rules of pension fund investment have changed

Inflation and the AI infrastructure bubble have disrupted the investment landscape for pension funds, which previously thrived on falling inflation, declining bond yields, cheap capital, and globalisation. Renowned investment officer Mario Fisher declared at the Institute of Retirement Funds Africa (Irfa) 2026 Conference that the prevailing investment frameworks are no longer applicable to the current environment, describing it as a "regime change."

Fisher asserts that efficiency is giving way to resilience and security, with geopolitical tensions, fiscal deficits, supply chain duplication, and carbon transition expenditures contributing to higher structural inflation and interest rate volatility. Traditional 60/40 equity-bond portfolios and sovereign bonds are no longer sufficient for diversification in this new regime.

Irfa chairperson Nancy Andrews emphasized that pension fund trustees must now evaluate governance based on actual post-retirement purchasing power rather than solely on procedural compliance. She stressed that strong governance starts with asking the right questions.

Financial regulators have also shifted their focus from compliance-based supervision to outcomes-based regulation, prioritizing value for money, cost transparency, and active ownership. However, pension funds must remain cautious about the AI investment bubble, as the current market fervour surrounding AI poses acute risks to institutional capital.

The primary challenge lies in the mismatch between institutional liability horizons (10-30 years) and the unproven long-term commercial mechanics of AI technology. Gaia Capital's executive chairman, Mich Nieuwoudt, warns against investing in AI without a clear understanding of its mechanics in the long term, emphasizing that even he is unsure whether AI will still be as prevalent 20 years from now.

A critical issue created by the AI surge is the immense demand for power generation and data centre infrastructure, with potential long-term power contracting risks. Institutional portfolios may over-concentrate in speculative technology assets without adequately accounting for the required risk premium, exposing members to severe downside shocks when expected outcomes deviate from reality.

Furthermore, traditional retirement fund asset allocation often indirectly holds national economic infrastructure through government debt rather than direct equity ownership. This approach has led to low institutional allocations to infrastructure, even though South African regulations allow up to 45% allocation to infrastructure.

Nieuwoudt attributes this under-allocation to institutional inertia and knowledge gaps, suggesting that African pension funds remain overly dependent on Development Finance Institutions (DFIs) and international debt pricing.