Best performing SA Hedge Funds deliver strong performance during a bull market

In a year when assets under management nearly doubled and there was a much wider diversity in the hedge funds participating in the Old Mutual Symmetry Hedge Fund Survey, six of South Africa's top performing hedge funds were recognised for their performance at the third annual awards ceremony in Johannesburg last night.

The winners were picked from the 34 eligible hedge funds that participated in the qualifying Symmetry Multi-Manager Hedge Fund Performance Survey. Trophies were awarded to two overall winners based o­n their risk-adjusted performance over o­ne and, for the first time, three years. Winners in each of the four hedge fund categories in the survey were also recognised for their leading performance during 2006.

Although participation in the Symmetry Hedge Fund survey is open to any hedge fund, o­nly managers who have at least R5m under management and a twelve-month track record qualified for awards.

Fred Liebenberg, Symmetry's Head of Alternative and Absolute Manager Research, says: "It is pleasing to see that more and more hedge fund managers have come to market managing other hedge fund styles. Last year most new hedge funds traded in the long/short equity sector but that has changed significantly over the past year."

The number of hedge funds managing Fixed Interest strategies doubled between December 2005 and 2006. Three new Market Neutral funds were added during the period and the number of Trading Strategy funds in the survey increased from five to seven. Liebenberg notes that the industry is seeing more and more managers leaving proprietary trading desks and establishing hedge funds. "They do not always have a long investment history but are making use of very interesting quantitative models," he notes.

As an indication of the growing popularity of hedge funds and the strong market conditions that prevailed during 2006, assets under management included in the Symmetry Hedge Fund survey nearly doubled last year to R8.3bn from R4.6bn. Fixed Interest strategies saw the strongest growth, nearly trebling assets under management to R622m from R270m the previous year.

Long/short equity hedge funds were the best performers last year, delivering a median return of 23.6% compared with Market Neutral's median 12.3% and the 23.5% delivered by the Trading strategy hedge funds during 2006. Says Liebenberg, "That is to be expected given that last year was a bull market." Performance in the Fixed Interest strategies reflected the lacklustre conditions in the asset class last year, offering investors a slightly lower median return of 7.9% during 2006 compared with the previous year's 8.1%.

Hedge funds remain unregulated, with the Financial Services Board still exploring how to incorporate them in the existing legislation. While it is not illegal to manage or invest in a hedge fund, no disclosure requirements or investor protection regulations apply to funds  investing in alternative asset classes. As a result, hedge fund managers are not yet allowed to actively solicit investment into their funds.

Meanwhile, hedge funds in the increasingly diverse industry are developing valuable performance track records that will eventually allow investors to make informed choices when investing in this growing industry. The Symmetry hedge fund winners for 2007 are:

Best 1 year performance: Fixed Interest Category
The award for the best performing Fixed Interest fund goes to the RMB Proton Fund with a return of 14.5% for the year. Despite its recent good performance, the Proton Fund is still the smallest fund in the Fixed Interest category.

The Fixed Interest Category remains the smallest category in the SYmmETRY survey, despite the addition of three more funds during the year and almost tripling assets under management to just over R600m.

Best 1 year performance: Long-Short Equity Category
The top performing fund in the Long-Short Equity category was the Oryx Segregated Fund. For the year, the fund delivered 46.5%, 5% better than the JSE and more than 6% ahead of the next best competitor fund. The Long-Short Equity category is still the largest category in terms of both number of managers and assets under management and also delivered the highest average category return of 27.1% for the third consecutive year.

Best 1 year performance: Market Neutral Category
The Market Neutral category was very closely contested this year with the winner, the Stanlib Quasar Fund, ending the year less than 0.5% ahead of the next two contenders. The Quasar Fund is one of the longest running funds in the market neutral category and was also the winner of the market neutral category award at the inaugural SYmmETRY Hedge Fund Awards.

The Market Neutral category saw strong growth in assets under management to R2.7bn, but has no new managers with a track record of less than o­ne year.

Best 1 year performance: Trading Category
The Badger Quant Fund from DWT Securities was the best performing fund in the trading category with a return of 42.8% for the year. Although the fund was a new addition to the survey this year, it has a track record of more than 3 years and a return over this period of double its nearest rival. Despite this good track record, the fund is still one of the smallest in the category.

Despite having the overall worst performing manager o­n the survey,
the trading category delivered average returns of over 20% for the
year, making it the second best performing category o­n average. As
in all other years, however, the Trading category also had the highest
level of volatility of returns, which might explain why the category
was also the slowest growing category in the survey.

Best risk-adjusted performance: 1 Year
The award for the overall best risk-adjusted performance over o­ne
year goes to the Oryx LLP Fund. Its return for the year of 46% placed
it second overall and was achieved with o­nly o­ne negative month and
a standard deviation of 9.7%, resulting in an omega ratio of 18.5.
The long-short equity category delivered the two best risk-adjusted
performances for the year, with the next best fund coming from the
fixed interest category.

Best risk-adjusted performance: 3 years
The award for the overall best risk-adjusted performance over three years goes to the Oryx Segregated Fund. The fund delivered the second best performance over the last three years with an annualised return of 43.7%, a standard deviation of 10.7% and only 5 negative months, resulting in an Omega ratio of 11.6.

Mention must be made of the Praesidium SA Hedge Fund, which had an Omega ratio of 11.5 over the same period. Although this fund had a much lower return of 27.1% p.a., it delivered this with a standard deviation of 5.7% and o­nly two negative months.