AIMA, ASISA and Financial Services Board take next step to extend hedge fund regulation

16 July 2009 Alternative Investment Management Association (AIMA) and Association for Savings and Investment SA (ASISA)

Alternative Investment Management Association (AIMA) Chairman Robert Foster and Association for Savings and Investment SA (ASISA) CEO Leon Campher met with Financial Services Board (FSB) executives on Tuesday 14th July to provide them with a progress report on the joint initiative to extend the regulatory framework for hedge funds in South Africa.

The Financial Services Board currently regulates 128 Hedge Fund Managers in South Africa; the current initiative aims to extend regulation to the product level too.

Hedge fund managers are already regulated in SA under a Financial Advisory and Intermediary Services Act (FAIS) license.

Yesterday’s meeting follows the initial meeting in April this year amongst the same parties where it was agreed with the FSB that AIMA and ASISA would do the preliminary product design framework and planning for further regulation.

Robert Foster, Chairman of AIMA and COO of Cape Town based Alpha Asset Management, said that at a recent one day Hedge Fund Industry Workshop, 14 elements of the product regulation process were debated resulting in a consensus view from industry on the way forward.

“This view was presented to the FSB executives as well as representatives from the Collective Investment Scheme, FAIS and Retirement Fund departments. It was agreed that the focus will be on developing products under suitable current legislation, possibly the Collective Investment Schemes Control Act (CISCA).”

Foster noted that this should ensure the quickest progress towards regulation and ensuring risk management standards are high and practically enforceable. It will also ensure transparency and reporting standards are consistent with the needs of the regulator and the investors.

“Fortunately the high level of self regulation at a product level in the South Africa hedge fund industry will make the transition to a regulated product environment very manageable for industry.”

The next step is for stakeholders, industry, the FSB and Treasury to workshop the current proposed framework. An agreed date has been set for late August 2009.

Campher says the regulation of hedge fund products is the next logical step given the fact that hedge fund managers are already regulated.

“With the aim of moving this project forward with urgency ASISA will continue to form the technical backbone of this initiative, making available the necessary resources required to finalise a workable framework.”

Bert Chanetsa, Deputy Executive Officer at the FSB, said after the meeting on Tuesday that Hedge Funds were a reality the world over.

“They assist in meeting client needs and investor demand while also helping with financial market pricing efficiency.

“The challenge we all have is to provide a regulatory framework in South Africa and globally that provides investors, regulators and investment managers with more comfort that the risks associated with this type of investing are better understood and managed.”

“The FSB is happy to be working alongside industry to find the appropriate solutions.”

Foster said he was pleased with the progress made and that the industry believes that good regulation is good for business.

“Further regulation is the best way to grow the size of the industry in South Africa.”

Currently only 1.3% of SA pension fund money is invested with hedge funds compared to a global average of 18%.

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