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Johannesburg - The South African hedge fund industry is becoming increasingly transparent and competitively priced, according to Novare's October 2009 SA Hedge Fund Industry survey.
"While some local funds had to deal with client outflows, just as many saw net inflows over this period when the performances from local hedge funds met expectations," said Carla de Waal, portfolio manager at Novare Investments.
"With managers more accommodating in terms of lower fees and regular reporting, South African hedge funds look poised for growth."
The industry continued to grow with 20 new funds coming on board. Of these, 65% were established by existing fund managers.
According to the survey, many fund managers have moved away from high initial, or basic, fees (often between 1.5% to 2.5%). These have been reduced to about 1%. Hedge fund managers who beat their benchmark charge an average performance fee of 20%.
"There has been a downward shift in fees charged by hedge funds, and redemption periods have shortened with a markedly lower percentage of funds requiring three months' notice," said De Waal. "Hedge funds managing nearly three-quarters of industry assets require one month's notice for investors to redeem."
One frequently mentioned barrier to entry is the level of minimum investment capital required - 62% of local hedge funds demand at least R1m as a minimum initial investment, while 14% require R10m. Only 5.8% have no minimum investment requirement.
Pension funds
At present, retirement or pension funds are only able to invest 2.5% of their portfolios in hedge funds.
"While Regulation 28 of the Pension Fund Act makes it possible for pension funds to invest in alternative investments, impending hedge fund regulation could usher the way for pension funds to invest more freely in these," said Eugene Goosen, head of alternative investments at Metropolitan Asset Managers.
Goosen added it was difficult to pinpoint which way the industry was headed in terms of regulation, but said the main tenet of any regulation should be to ensure that fund managers adhere to their mandates.
De Waal noted more funds are disclosing their positions on a daily basis than before.
"Reporting and transparency to investors continued to improve, with a noteworthy increase in the percentage of funds reporting daily," she said.
Daily reporting means investors can be aware of funds' exposure and gearing.
- Fin24.com
