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Essential role for hedge funds in SA retirement funding industry

06 September 2011 Blue Ink Investments
Thomas Schlebusch

Thomas Schlebusch

The recent high levels of volatility experienced by local and global stock markets has once again highlighted the need for investors to effectively diversify their retirement portfolios. According to Thomas Schlebusch, CEO of Blue Ink Investments, investors who wish to diversify their retirement investments should be looking to South African hedge funds, which are currently offering attractive risk adjusted returns and low volatility levels.

Investors have previously had negative perceptions of hedge funds due to overseas funds related to Bernie Madoff, Long Term Capital and others, said Schlebusch at the 30th annual Sanlam Employee Benefits Benchmark Symposium in August. “South African hedge funds have performed well, have a high degree of transparency, are highly liquid and help retirement funds to retain value for their members.”

Long touted as an investment class that thrives and can generate positive returns in volatile market conditions, Schlebusch says thathedge funds are not the holy grail, but their real benefit is to cut out some of the downside risk through means not available in more traditional funds, and should therefore form an essential part of a retirement fund portfolio.

He says that during the global financial meltdown in 2008, the Blue Ink Hedge Fund Composite, which monitors all hedge funds in South Africa, ended the year 2% in positive territory. Over the course of 2008, 60% of local hedge fund managers were in positive territory and 30% beat cash returns. “In contrast, the overall equity market was down by around 23% in 2008, so hedge funds did pretty well,” he says.

“While hedge funds underperformed the overall market in the 2009/10 recovery, they still performed well when compared with cash.”

However, Schlebusch says hedge funds were not well understood, causing many investors and retirement fund trustees to shy away from them.

Attendees at the symposium were told that retirement fund trustees needed to educate themselves more about hedge funds, including Fund of Hedge Fund opportunities. They were also told that South African hedge funds are highly regulated, providing significant protection and peace of mind for investors.

Meanwhile, Phillip Mjoli, Head of Institutional Funds at Sanlam Investment Management (SIM), stressed that a major advantage of a hedge fund is its ability to reduce volatility in a retirement investment portfolio. “The level of risk versus reward is better balanced through the use of hedge funds and they are also able to improve the performance of funds during a down cycle in financial markets,” he said.

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