Hedge fund industry assets continue to grow despite unprecedented market volatility

15 December 2021 Novare
Kagiso Mathole

Kagiso Mathole

The 2020 Novare South African Hedge Fund Survey (SAHFS) indicates an interesting development; that despite historically unprecedented market volatility, the industry has still seen a 16% increase in assets under management (AUM), which is the largest year-on-year increase since 2010.

The 2020 Novare SAHFS solicited a notable response from no less than 63 asset managers who collectively manage over 141 uniquely mandated hedge funds in South Africa, with assets under management in excess of R61.5 billion. This article shares some of the key findings and industry highlights. 

Key contributors to asset growth 

According to the survey, the main contributors to this record increase of AUM in 2020 were: 

  • Good performance: Similar to 2019, the biggest contributor to the increase in AUM was greater returns. A contribution of R6.5 billion can be attributed to performance.
  • Industry flows and dissolved or closed funds: Survey data indicates a reasonable and positive net inflow, which is a significant departure from what has been observed over the past few years.

  • Important to note though, is that assets valued at R3.5 billion were lost by strategies that were dissolved.
  • Consolidation: Assets valued at R800 million were transferred in 2020, which equates to four times the value of assets transferred to other existing funds that are usually managed by the same investment houses, in 2019.
  • Launch of new funds: Even though it is not possible to ascertain whether these funds are from within the industry or part of the new flows, newly launched hedge funds also contributed to a growth in AUM, but these assets constitute just over R1 billion of the total AUM. 

Hedge fund industry highlights 

The survey noted the following industry highlights: 

  • Large asset managers with hedge fund investment capability and AUM of between R10 billion and R100 billion saw a relatively high growth in hedge fund assets, followed by those with AUM of below R500 million.

  • Directional equity long-short (LS) strategies saw further losses of assets, as outflows were higher and resulted in the dissolution of some funds.
  • Despite the economic challenges of 2020, the performance of the hedge fund industry remained positive across all categories, manager sizes and strategies.
  • Large hedge fund managers with AUM valued at more than R2 billion once again posted the highest returns, followed by hedge funds with AUM of between R500 million and R1 billion. This has been a consistent trend over the past few years.
  • A total of 141 funds were assessed for strategy performance, and on average, positive returns were achieved across the different strategies.
  • Fixed income (FI) arbitrage and equity market-neutral (MN) funds outperformed other strategies and managed to better protect capital during large market drawdowns. On average, the strategies respectively produced 11.6% and 8.4% returns over the 12 month-period.
  • Directional equity LS strategy represented 48.1% of the asset size in 2020, which is the lowest this has been since 2013.

  • More capacity is now available, as the majority of funds are still below their asset peaks compared to that of previous years.

  • Pension funds, high-net-worth individuals (HNWIs) and retail investors (RIs) continue to grow as significant allocators in the industry. 

Industry thermometer 

Novare started introducing an industry thermometer in the 2018 SAHFS, which requests respondents to provide their views on the main headwinds for the industry, by ranking the following factors: poor performance, loss of assets, fee pressures, increased regulatory requirements and associated costs, lower liquidity levels, loss of clients and other aspects. Based on the response from 80% of survey participants, the main industry head for 2020 was as follows: 

  • Loss of assets (36.7%)
  • Poor performance (23.3 %)
  • Increased regulatory requirements and associated costs (23.3 %)
  • Loss of clients (10%)
  • Only 3.3% stated the fee pressure to be their number one headwind 

The 2020 Novare SAHFS marks the 17th year of the survey, which has become a trusted source of knowledge on new industry developments, as well as first-hand insights on the hedge fund industry, covering the likes of assets, strategies, leverage and performance, as well as operational and expense aspects. This would not have been possible without the support and participation from industry players. 

Read the full report:


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