Publications
Partners
WHEN FINWEEK ASKED the South African Twitterverse what they thought of hedge funds the responses that came back included “evil bankers”, “reckless traders”, “big money-making instruments”. After the fallout in the global financial crisis, those instruments have dropped out of favour with investors worldwide.
In South Africa, hedge funds are interesting animals. Unlike many of their international peers – which are often marketed as wheeling and dealing proprietary trading businesses – hedge funds are marketed on the grounds of their low volatility relative to the JSE All Share Index.
Kevin Ewer, a portfolio manager at Blue Ink Investments, says the average South African hedge fund posted a gain of 2,38%, with a volatility level of 1,53%. By comparison, the All Share Index returned 4,48% gain over the same period but with a volatility level of 20,02%.
Over the three-year period to 31 March this year, hedge funds returned 31% while the All Share returned 14,4%. However, if dividends are taken into account, the All Share’s returns would be nearer 17,5%.
But not everybody is all that impressed with hedge funds, including high net worth individuals who have become disenchanted with their performance. Absa Wealth acting CEO Carl Roothman says sophisticated investors had begun to shun hedge funds following the fallout of the global financial crisis. “Investors are now going back to simple and transparent products,” he says.
Ram Barkai, CE of JSE-listed asset management firm and hedge fund operator Cadiz, is also cynical about the hedge fund industry as a whole. “Hedge funds are there to diversify your portfolio. It’s not a casino – it’s an investment.” Barkai’s other concern is that the level of sophistication of South African investors isn’t in line with investors overseas, who have become more savvy towards investment products such as hedge funds.
Investments in hedge funds are also not ideal for investors who may need rapid access to their cash. It can take up to 60 days before redemptions are made. That was one of the issues that came to the fore during the financial crisis: investors wanted to bail out, creating a liquidity squeeze for the funds – which were in turn forced to sell.
Another aspect about hedge funds recently raised by Andrew Baker, CEO of Alternative Investment Management Association (AIMA), was about proposed legislation in the European Union that could potentially hurt the hedge fund industry. He criticised motions recommended by the European Parliament’s economic and monetary affairs committee with regard to the EU’s alternative investment fund managers’ directive.
“We’re also concerned the directive singles out our industry for special treatment and imposes controls and burdens it doesn’t place on other financial market participants,” says Baker. He also criticised comments passed by EU policy makers about remuneration for fund managers. Says Baker: “The rules on remuneration have been essentially taken over from the banking directive. This isn’t appropriate: asset managers aren’t banks. The asset management sector has completely different compensation structures, such as performance fees, to the banking sector.”
Ewer says diversification remains key to the development of a successful portfolio. “It’s impossible to know when a bull market will turn bearish – which is why it’s so important to always maintain exposure to asset classes such as hedge funds that offer a degree of protection in periods of market turbulence.”
In South Africa, hedge funds are interesting animals. Unlike many of their international peers – which are often marketed as wheeling and dealing proprietary trading businesses – hedge funds are marketed on the grounds of their low volatility relative to the JSE All Share Index.
Kevin Ewer, a portfolio manager at Blue Ink Investments, says the average South African hedge fund posted a gain of 2,38%, with a volatility level of 1,53%. By comparison, the All Share Index returned 4,48% gain over the same period but with a volatility level of 20,02%.
Over the three-year period to 31 March this year, hedge funds returned 31% while the All Share returned 14,4%. However, if dividends are taken into account, the All Share’s returns would be nearer 17,5%.
But not everybody is all that impressed with hedge funds, including high net worth individuals who have become disenchanted with their performance. Absa Wealth acting CEO Carl Roothman says sophisticated investors had begun to shun hedge funds following the fallout of the global financial crisis. “Investors are now going back to simple and transparent products,” he says.
Ram Barkai, CE of JSE-listed asset management firm and hedge fund operator Cadiz, is also cynical about the hedge fund industry as a whole. “Hedge funds are there to diversify your portfolio. It’s not a casino – it’s an investment.” Barkai’s other concern is that the level of sophistication of South African investors isn’t in line with investors overseas, who have become more savvy towards investment products such as hedge funds.
Investments in hedge funds are also not ideal for investors who may need rapid access to their cash. It can take up to 60 days before redemptions are made. That was one of the issues that came to the fore during the financial crisis: investors wanted to bail out, creating a liquidity squeeze for the funds – which were in turn forced to sell.
Another aspect about hedge funds recently raised by Andrew Baker, CEO of Alternative Investment Management Association (AIMA), was about proposed legislation in the European Union that could potentially hurt the hedge fund industry. He criticised motions recommended by the European Parliament’s economic and monetary affairs committee with regard to the EU’s alternative investment fund managers’ directive.
“We’re also concerned the directive singles out our industry for special treatment and imposes controls and burdens it doesn’t place on other financial market participants,” says Baker. He also criticised comments passed by EU policy makers about remuneration for fund managers. Says Baker: “The rules on remuneration have been essentially taken over from the banking directive. This isn’t appropriate: asset managers aren’t banks. The asset management sector has completely different compensation structures, such as performance fees, to the banking sector.”
Ewer says diversification remains key to the development of a successful portfolio. “It’s impossible to know when a bull market will turn bearish – which is why it’s so important to always maintain exposure to asset classes such as hedge funds that offer a degree of protection in periods of market turbulence.”
