Johannesburg - South African retail investors and pension fund managers will be better off when the country has a well-regulated hedge fund industry, says a fund manager.
According to Vaughn Webber, manager of Sanlam Investment Management's (SIM's) Gen-X fund, hedge funds are perfectly suitable to reduce the uncertainty investors face.
In the light of the JSE hitting an 11-month high on Monday, commentators have described the markets as "toppish" - causing some investors to look for protection against a possible correction.
Hedge funds allow their managers to go either "long" or "short" on a share, depending on whether they feel the market or specific shares will go up or down. This is unlike traditional unit trusts, which can only make money when shares go up.
While hedge fund managers are regulated by the Financial Services Board (FSB), their products and funds are not. However, the Alternative Investment Management Association (AIMA) said in July that discussions with the FSB on the issue are continuing.
Webber believed critical changes would take place as hedge funds become regulated.
"We will definitely see increased disclosure of positions - much like how the unit trust sector reports quarterly at the moment," he said. He added that this would make the market more efficient, and disclosure would prevent concentrated positions from being built up in certain markets or shares.
A second area Webber believed would come under scrutiny is the role of hedge funds in the pension fund sector. "At the moment pension funds can only be long of the market," he said, emphasising that this does not provide security for investors in a falling market.
- Fin24.com