Alternative investments in Botswana: Building a future beyond tradition
NDIYE ISAACS | Thursday October 23, 2025 12:21
Botswana institutional investors are regulated by NBFIRA and deploy investments within the limits on Pension Fund Rules 2 (PFR2). The updated rules introduce new allocation limits and timelines for repatriating offshore funds.
The initial PFR2 limited pension funds to investing not more than 70% of their capital offshore, while the revised version mandates a minimum domestic investment threshold of 50% to be implemented in a phased manner and to be completed no later than December 2027. The aim is to support sustainable domestic economic development by channelling pension capital into local capital markets and reducing over-reliance on international markets for returns.
PFR2, 2023 rules allow pension fund managers to utilise alternative instruments in a manner that complies with the guidelines provided. Alternative investments are generally long-term, riskier, complex and less liquid compared to the conventional asset classes, but they can offer higher potential returns. Indeed, alternative investments come with higher complexity as they have less transparent pricing and need greater due diligence requirement. Hence, strong governance, sustainable risk management frameworks, skilled and specialist asset managers are critical.
The updated rules allow for pension funds to allocate up to 25% of their assets to alternative investments, a significant increase from the initial 15% allocation. The new rules introduce local infrastructure funds and increased investment limits for the Local Private Equity funds compared to the old PFR2.
Understanding why the shift towards more domestic allocation and ultimately more alternative investments matters is crucial. The update to PFR2 is a policy shift which strategically allows for pension fund capital to play a role in Botswana’s economic development by allowing for investments in local development through private equity, infrastructure and private debt markets which not only generates financial returns but also stimulates economic activity and potentially create significant employment opportunities. Investing more capital in alternative investments, including funding renewable energy projects, and infrastructure projects; will keep the capital working within the country.
However, repatriating capital back into Botswana has put pressure on the listed equities and bonds markets as they lack capacity, diversity and liquidity. This will likely result in increased concentration risk, or even an asset bubble, ultimately resulting in underwhelming returns from the listed instruments.
Therefore, this makes alternative investments an attractive and necessary option to drive diversification away from local listed assets as pension funds repatriate capital in line with the updated rules. A 25% exposure to alternative investments is a generous allowance which is designed to encourage pension funds to explore areas that will support and contribute beyond just activity in capital markets.
Botswana is not the first to move in this direction. There are several countries that have implemented similar pension fund reforms, offering valuable lessons:
• South Africa updated Regulation 28 of the Pension Funds Act in 2022 to increase upper limit exposure to Infrastructure and Hedge Funds. The evolving regulation shows how a clear policy shift can unlock capital markets and long-term economic benefits. South Africa’s Strategic Infrastructure projects financed by pension funds have created direct and indirect jobs in construction and engineering. The reform further unlocked funding for renewable energy projects under South Africa’s Renewable Energy Independent Power Producer Procurement Programme.
• The 2014 Pension Reform Act in Nigeria expanded the scope in which pension funds can be invested to include specialist funds like private equity, real estate infrastructure and hedge funds. This reform also slightly improved Nigeria’s pension contribution participation rate by reducing the minimum employee threshold for mandatory contributions and raising the contribution rate from 15% to 18%, encouraging greater formal sector compliance. Nigeria’s experience highlights how regulatory clarity can support market evolution.
• Kenya’s Retirement Benefits Authority introduced rules allowing investments in Exchange Traded Funds and Public Private Partnership Debt Instruments in 2020. This introduction allowed for financing infrastructure and affordable housing projects thus improving standards of living. Kenya has guided pension capital toward impact investments without compromising returns through innovative financial vehicles such as Real Estate Investment Trusts (REITs). Since the change, pension allocation to REITs increased by 3.9%.
The common trend is that success requires clear policy, market innovation and capacity building.
While the opportunity is clear, the question remains: Is Botswana ready to absorb these repatriated funds? The reality is that traditional asset classes alone would not have been able to absorb the repatriated capital by the 2027 deadline due to the liquidity constraints and the limited number of viable assets in the market. Alternative investments broaden the investment toolkit available in our markets, which makes them a necessity and not just an option.
Since the update to the rules, there have been signs of progress in the alternative investments space, with private equity firms and infrastructure funds emerging. The market also has increased research on infrastructure funds focused on local development and to date, NBFIRA has licensed twenty (20) asset managers, of which six (6) are specialist Private Equity managers. The average local private equity fund’s overall strategy should promote at least 70% onshore investments.
Given the long-term investment horizon and the limited structural nature of the private equity funds, their due diligence requirements are stringent, a necessity for governance control. Promoting a minimum local investment allocation further suggests a need to encourage local investments and ultimately economic development.
Furthermore, regulations on innovative assets, Public-Private Partnerships (PPP) and funds that support impact-driven investment projects, are being modernised. These are structures that can be used to increase exposure to alternative investments. Some asset managers that are not specialised are expanding in size, improving their governance structures and skills in line with deal structuring and sourcing viable investment opportunities through research, positioning themselves to play a part in the current policy shift. Collaboration between asset managers and the government through PPP will ensure that repatriated capital not only flows back but also results in sustainable and progressive economic development in Botswana.
Additionally, the efforts undertaken by asset managers to align with the updated PFR2 requirement is more than just a compliance exercise. It is the pension industry’s way of seizing the opportunity for pension capital to contribute to value creation, innovation and development in Botswana. Strategic alternative investments can be utilised to generate consistent long-term cash flows aligned with pension obligations, reduce risk associated with international market volatility and contribute to Environmental, Social and Governance (ESG) goals as encouraged by the updated rules.
One example of how the market is adapting is the Bifm Local Private Debt Fund. Although approved several years earlier, the Fund officially launched in 2023, making it one of the first structured vehicles aimed at alternative credit markets in Botswana. It offers institutional investors access to yield enhancing debt instruments denominated in Pula and tied to local counterparties. The aim of the fund is to offer institutional investors an attractive risk return profile and stable income streams. This early positioning demonstrates that asset managers can be proactive in designing solutions that not only comply with regulation but also sell long term value to investors.
The revised PFR2 rules have indeed marked a pivotal moment in the Botswana Investment landscape. The rules do not only present a challenge but also an opportunity for diversified returns, sustainable economic development, infrastructure development and impactful investments.
It will take informed collaboration between trustees, asset managers, regulators, and developers to build the products, governance, and pipelines that make alternatives work. At Bifm we see this as a moment to shape our investments landscape, a time to move beyond tradition and invest in a future built on innovation and shared prosperity.
*Isaacs is Assistant Investment Accountant at Bifm