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ASISA: Local hedge fund industry converts 89% of assets to regulated CIS structures in 2016

28 February 2017 Eugene Visagie, ASISA

The South African hedge fund industry grew its assets under management by R5.3 billion in the 12 months to 31 December 2016, ending the year with assets of R67.4 billion.

The 2016 statistics for the local hedge fund industry, released by the Association for Savings and Investment South Africa (ASISA) today, show that despite this growth, the hedge fund industry continues to represent less than 1% of South Africa’s regulated savings and investment pool.

Eugene Visagie, convenor of the ASISA Hedge Funds Standing Committee, comments that in addition to navigating difficult market conditions in 2016, the industry also had to prioritise the conversion of hedge fund products to structures that conform to the provisions of the Collective Investment Schemes Control Act (CISCA).

“Our industry will remember 2016 as a year of flux during which around 89% of hedge fund assets were transitioned to regulated structures. By the end of December last year, more than 65% of hedge fund assets had moved to Qualified Investor Hedge Funds and 24% to Retail Investor Hedge Funds.”

In April 2015 South Africa became the first country to put in place comprehensive regulation for hedge fund products. The new regulations provide for two categories of hedge funds, namely Qualified Investor Hedge Funds and Retail Investor Hedge Funds.

The local hedge fund industry consists of 14 hedge fund management companies that have 277 portfolios: 116 are Retail Investor Hedge Funds and 161 are Qualified Investor Hedge Funds.

According to Visagie, the 10 largest hedge fund managers in South Africa manage 73% of the hedge fund industry’s total assets under management.

“This means that the bulk of hedge fund assets are invested in sizeable portfolios managed by well-established hedge fund asset managers with a consistent track record of success.”

Visagie says hedge funds apply a number of different specialist strategies to asset classes such as equities, bonds, cash and property with the aim of mitigating the impact of market volatility. The most common hedge fund strategy in South Africa is referred to as “equity long/short”. At the end of December 2016, some 62% of hedge fund assets were invested in this type of strategy.

He says the average performance figures for hedge funds illustrate the role of these products in a well-diversified investment portfolio.

Visagie cautions that hedge funds are designed to outperform the markets during times of extreme volatility. “However, when financial markets deliver strong performances hedge funds are unlikely to shoot the lights out,” he concludes.

 

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