Publications
Partners
Novare CIS is the first asset manager to come to the market with an approved product, and it will host both retail and qualified investor hedge funds.
Retail hedge funds will operate under stricter regulations to ensure investor protection, while qualified investor hedge funds will be subject to a less strict but fitting regulation with a focus on reporting and monitoring potential systemic risk, as well as adequate disclosure to investors.
Eugene Visagie, head of hedge fund investments at Novare CIS, says the regulation of hedge funds will assist in growing industry assets, while generating opportunities to provide alternative investment vehicles to retail investors.
“The two most important benefits of including hedge funds as an additional alternative asset class in an investment portfolio are capital protection and asset class diversification,” he says.
Visagie says South African hedge funds have been successful in protecting capital and minimising drawdowns, resulting in enhanced returns and lower risk in the overall portfolio.
“In terms of diversification, hedge funds respond differently to market conditions when compared with traditional asset classes, resulting in a low correlation with other assets.”
The Novare Mayibentsha Growth Retail Fund of Hedge Funds aims to achieve moderate capital growth with reasonable levels of income, while keeping capital preservation in mind.
It will invest in a broad range of participatory interests and other forms of participation in collective investment schemes.
However, investments will be allocated to a minimum of six portfolios, with a maximum of 30% allocated to a single portfolio.
While the fund portfolio does not apply leverage, the underlying portfolios may apply leverage.
The fund’s benchmark is cash plus 6%, net of fees. The fund is suited to investors with a moderate to aggressive risk profile and the minimum investment amounts are R1 000 a month or a R50 000 lump sum.
New legislative requirements
Although product regulation is only now coming into effect, hedge fund asset managers have been regulated under the Financial Advisory and Intermediary Services Act since October 2007 under a separate licence category.
This legislation also regulates unit trusts, and places the oversight and supervision of hedge funds under the jurisdiction of the Financial Services Board (FSB).
Hedge funds have previously been available in South Africa, but were only accessible by high-net-worth investors who were able to invest amounts of R10 million and up, and who were comfortable to do so in the knowledge that the hedge fund market was unregulated in South Africa.
Yonela Makwetu, investment analyst at independent multimanager Novare Investments, says: “Some of the resultant requirements for hedge funds include additional reporting to investors and to the FSB, enhanced risk monitoring, as well as independent trustee oversight.
“A manager must establish, document and maintain a risk management policy providing for the daily management of operational risk, business risk, liquidity risk and credit-counterparty risk.”
The new regulations distinguish between retail and qualified investor hedge funds.
Retail investor hedge funds will be open to investments from the public and will be subject to stricter rules than qualified investor hedge funds aimed at more seasoned investors, including institutional investors such as retirement funds.
Under the new regulations, retail hedge funds will offer a maximum notice period of a calendar month to facilitate redemptions, with qualified hedge funds requiring three calendar months.
Retail hedge funds will also have to report more frequently to the FSB than qualified funds.
