Reaction to EU hedge funds proposals shows that SA is ahead of global curve

Responding to the European Union’s (EU) proposed rules for hedge funds, the Alternative Investment Management Association (AIMA) inSouth Africa said today that the local hedge fund industry is ahead of the global curve when it comes to the regulation of hedge funds.

The EU yesterday stated that it wants hedge funds with more than €100 million of funds to file detailed financial information with the Financial Services Authority – something European hedge funds have railed against.

But Robert Foster, Chairman of AIMA and COO of Cape Town based Alpha Asset Management, said that while other countries were still grappling with the idea of regulation and disclosure, the South African hedge fund industry is in favour of increased transparency and is calling for regulation to increase the size of the industry.

Earlier this month, industry bodies AIMA and the Association for Savings and Investment SA initiated discussions with the Financial Services Board (FSB), who currently regulate 128 Hedge Fund Managers inSouth Africa, with a view to extending regulation to the product level. Hedge fund managers are already regulated in SA under a FAIS license.

“Good regulation means good business,” said Foster.

“The South African hedge fund industry is in favour of providing all relevant information to the Financial Services Board so that at any time they can see positions any fund is carrying.”

Foster also pointed out that regulation in South African would only require the formalisation of what hedge funds already do as a self regulating industry.

“Unlike the European experience, we already have the systems in place so that compliance with regulation requirements will not add much to our cost base nor require new expertise.

“The local hedge fund industry is also a world leader in risk management and transparency,” noted Foster.

In addition to strong internal risk management, South African hedge funds typically have several external layers of risk management in the form of independent prime brokers, administrators and asset consultants who monitor portfolio management on a regular basis and can detect mandate breaches or other activities of concern that may adversely affect investors.

Foster also pointed out that currently only 1.3% of SA pension fund money is invested with hedge funds compared to a global average of 18% and that with regulation would come an increase in the size of the local industry – and for good reason.

“Local hedge fund managers have outperformed traditional equity funds over the past five years with less risk and lower volatility; this being a period of positive and negative equity market performance.

“Since the start of 2004, domestic equity unit trusts have returned an average of 119.5%; long-short hedge funds in SA 151.55%; and the JSE’s All Share Index’s return was 128.55%,” said Foster.

Cash returned a cumulative 52.9% over the past five years in South Africa while the composite of hedge funds returned 97.71%.

“Good regulation means good business,” said Foster.

“The South African hedge fund industry is in favour of providing all relevant information to the Financial Services Board so that at any time they can see positions any fund is carrying.”

Foster also pointed out that regulation in South African would only require the formalisation of what hedge funds already do as a self regulating industry.

“Unlike the European experience, we already have the systems in place so that compliance with regulation requirements will not add much to our cost base nor require new expertise.

“The local hedge fund industry is also a world leader in risk management and transparency,” noted Foster.

In addition to strong internal risk management, South African hedge funds typically have several external layers of risk management in the form of independent prime brokers, administrators and asset consultants who monitor portfolio management on a regular basis and can detect mandate breaches or other activities of concern that may adversely affect investors.

Foster also pointed out that currently only 1.3% of SA pension fund money is invested with hedge funds compared to a global average of 18% and that with regulation would come an increase in the size of the local industry – and for good reason.

“Local hedge fund managers have outperformed traditional equity funds over the past five years with less risk and lower volatility; this being a period of positive and negative equity market performance.

“Since the start of 2004, domestic equity unit trusts have returned an average of 119.5%; long-short hedge funds in SA 151.55%; and the JSE’s All Share Index’s return was 128.55%,” said Foster.

Cash returned a cumulative 52.9% over the past five years in South Africa while the composite of hedge funds returned 97.71%.

The EU yesterday stated that it wants hedge funds with more than €100 million of funds to file detailed financial information with the Financial Services Authority – something European hedge funds have railed against.

But Robert Foster, Chairman of AIMA and COO of Cape Town based Alpha Asset Management, said that while other countries were still grappling with the idea of regulation and disclosure, the South African hedge fund industry is in favour of increased transparency and is calling for regulation to increase the size of the industry.

Earlier this month, industry bodies AIMA and the Association for Savings and Investment SA initiated discussions with the Financial Services Board (FSB), who currently regulate 128 Hedge Fund Managers inSouth Africa, with a view to extending regulation to the product level. Hedge fund managers are already regulated in SA under a FAIS license.

“Good regulation means good business,” said Foster.

“The South African hedge fund industry is in favour of providing all relevant information to the Financial Services Board so that at any time they can see positions any fund is carrying.”

Foster also pointed out that regulation in South African would only require the formalisation of what hedge funds already do as a self regulating industry.

“Unlike the European experience, we already have the systems in place so that compliance with regulation requirements will not add much to our cost base nor require new expertise.

“The local hedge fund industry is also a world leader in risk management and transparency,” noted Foster.

In addition to strong internal risk management, South African hedge funds typically have several external layers of risk management in the form of independent prime brokers, administrators and asset consultants who monitor portfolio management on a regular basis and can detect mandate breaches or other activities of concern that may adversely affect investors.

Foster also pointed out that currently only 1.3% of SA pension fund money is invested with hedge funds compared to a global average of 18% and that with regulation would come an increase in the size of the local industry – and for good reason.

“Local hedge fund managers have outperformed traditional equity funds over the past five years with less risk and lower volatility; this being a period of positive and negative equity market performance.

“Since the start of 2004, domestic equity unit trusts have returned an average of 119.5%; long-short hedge funds in SA 151.55%; and the JSE’s All Share Index’s return was 128.55%,” said Foster.

Cash returned a cumulative 52.9% over the past five years in South Africa while the composite of hedge funds returned 97.71%.

“Good regulation means good business,” said Foster.

“The South African hedge fund industry is in favour of providing all relevant information to the Financial Services Board so that at any time they can see positions any fund is carrying.”

Foster also pointed out that regulation in South African would only require the formalisation of what hedge funds already do as a self regulating industry.

“Unlike the European experience, we already have the systems in place so that compliance with regulation requirements will not add much to our cost base nor require new expertise.

“The local hedge fund industry is also a world leader in risk management and transparency,” noted Foster.

In addition to strong internal risk management, South African hedge funds typically have several external layers of risk management in the form of independent prime brokers, administrators and asset consultants who monitor portfolio management on a regular basis and can detect mandate breaches or other activities of concern that may adversely affect investors.

Foster also pointed out that currently only 1.3% of SA pension fund money is invested with hedge funds compared to a global average of 18% and that with regulation would come an increase in the size of the local industry – and for good reason.

“Local hedge fund managers have outperformed traditional equity funds over the past five years with less risk and lower volatility; this being a period of positive and negative equity market performance.

“Since the start of 2004, domestic equity unit trusts have returned an average of 119.5%; long-short hedge funds in SA 151.55%; and the JSE’s All Share Index’s return was 128.55%,” said Foster.

Cash returned a cumulative 52.9% over the past five years in South Africa while the composite of hedge funds returned 97.71%.