South African hedge funds attracted record net inflows of R6.24 billion in 2023 and grew the assets under management to R137.9 billion (excluding fund of funds), according to the latest figures from the Association for Savings and Investment South Africa (ASISA).
The industry recorded healthy net inflows for the second consecutive year. Net inflows in 2022 amounted to R4.54 billion.
These assets were invested in 213 hedge funds, and managed by 11 hedge fund management companies.
Hayden Reinders, the convenor of ASISA’s Hedge Funds Standing Committee, said the South African hedge fund industry seemed to be in good health, a factor attributable to the country’s regulatory treatment of hedge funds.
ASISA delivered its annual analysis of the state of the industry this month with numbers pointing towards increased retail investor participation in the market, thanks in no small part to regulatory reforms enacted in 2015.
Reinders said unlike many other markets, the retail investor played a big role in the growth of the South African market.
“Note that in South African retail hedge funds are strictly regulated in terms of the investments and the risks that they are allowed to take, and are open to all investors who can afford the average minimum lump sum investment amount of R50 000,” Reinders said.
He said that this made the average South African hedge fund much more accessible than its counterpart in many parts of the world.
The chartered accountant said there was a second class of hedge funds, Qualified Investor Hedge Funds, which required a minimum investment of R1 million.
He said they were open to investors with a solid understanding of the investment strategies deployed by hedge funds and the associated risks.
Hedge funds fall under the Collective Investment Schemes Control Act (CISCA) and were deemed regulated collective investment portfolios, he said.
According to Reinders, 32% of assets under management were held by Retail Hedge Funds at the end of December last year, while Qualified Investor Hedge Funds held 68% of assets.
Yet, the net inflows last year were driven predominantly by the retail funds, which attracted net inflows of R5.1 billion. South African Qualified Investor Hedge Funds, on the other hand, recorded net outflows of R1.1 billion.
Reinders was of the opinion that there was a growing awareness among retail investors that hedge funds were not high-risk alternatives to unit trust funds.
“Hedge funds are one of the building blocks of a well-diversified investment portfolio to reduce market volatility.This hopefully indicates that hedge funds in South Africa are increasingly being accepted as an important investment tool in mitigating market volatility.”
Retail hedge funds in South Africa have also become more accessible in recent years as investment platforms are increasingly willing to offer them to investors.
In addition to increased marketing initiatives by some of the bigger hedge fund managers, solid performance has also resulted in greater interest from retail investors.
Judging from the net inflows, South African multi-strategy hedge funds were most popular with retail and qualified investors last year.
Multi-strategy hedge funds were classed by ASISA as portfolios that did not rely on a single asset class to generate investment opportunities but blended various strategies and asset classes with no single asset class dominating over time.
ASISA said this was the first time in at least five years that South African retail multi-strategy hedge funds outdid retail long short equity hedge funds in popularity.
They attracted R2.27 billion in net inflows last year while long/short equity funds recorded R2.13 billion.
Reinders noted that the role and increasing trend of Hedge Funds in South Africa continued to be very positive.
In the Financial Sector Conduct Authority FSCA Financial Sector Outlook Study 2022, the regulator said its Regulatory Strategy 2021 - 2025, outlined the focus on, “implementing and embedding newly established approaches to policy development, regulation, supervision and enforcement” during the period ahead. Given its mandate, the FSCA has a clear impact on the financial sector and the broader economy, and could make a meaningful contribution to promoting growth, employment and poverty reduction.
Moreover, the FSCA has stated the strategic priorities over the five year period being to improve industry practises to achieve fair outcomes for financial customers, act against misconduct to support confidence and integrity in the financial sector, promote the development of an innovative, inclusive, and sustainable financial system, empower households and small businesses to be financially resilient and accelerate the transformation of the FSCA into a socially responsible, efficient, and responsive organisation.
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