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Getting ready

16 November 2005 Angelo Coppola

Caveo Fund Solutions – a fund of hedge funds company - has been launched, dependent on regulatory approval, bringing together Peregrine and Investment Solutions (IS), into a currently un-regulated investment sector – derivatives and hedge funds.

The launch seems to presuppose that there will be some regulatory clarity within the next six months.

According to industry sources the person responsible for hedge funds and other derivative products - Jurgen Boyd - at the FSB, has put his neck on the line and indicated that there will be some certainty, within this timeframe.

It also comes at a time when large retirement funds are starting to allocate significant amounts of assets to hedge funds. Added to which the local universe has increased in terms of strategies and numbers of funds.

Currently it seems that there are more than 80 funds which collectively manage R10bn. IS has meaningful data on 58 of these funds – with funds that have track records of at least six months – provided that there is daily interaction with the manager.

More importantly the current market size represents just 1% of the investment sector, which is well behind the international 5% portion of the cake.

Internationally it appears that more than $1 trillion is managed by hedge funds, driven mostly by the lure of absolute returns and reduced volatility, downside protection and the benefit of additional diversification.

Fees are quite expensive at the moment, says Jonathan Hertz, MD of the new business. We haven’t set our fees yet, but we will come in lower than the average fee. There will be a fixed fee – which will be less than 1% and then there will be a performance fee.

Another view is that there should be a negotiation with the managers and that any savings are passed on to the clients.

The company will immediately begin with some weight – with some R200m in assets under management, which they currently manage for in-house clients.

And any blending or fund of hedge funds business generated by the two shareholders Peregrine, Citadel and Investment Solutions, must come through the new business.

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