A presentation that Andreas and my self (Jacques) presented on behalf of the Financial Services Board both in Cape Town and Pretoria as well as the University of Stellenbosch

1. FSB Presentation

2. What is a Hedge Fund?

Define Long only then HF:
◦ Long only = good news
◦ HF = all news

Hedge funds may make use of short
selling, leverage and derivatives to
assist in developing an alternative
investment strategy, to generate
absolute returns that should in
essence be uncorrelated to the
markets.

3. Historical Context








1949 Alfred Winslow Jones
First Fund of HFs Created 1969
1993 some hedged trading in Prop
Desks
1995 First SA hedge fund appears
1998 LTCM Crash (Systemic Risk)
2000 Tiger Fund closes
2003 AIMA SA launched (Now under
ASISA)
2012 Industry AUM record at R33 Billion

4. Reasons I want to invest in
HFs
Investors seeking Alpha (leverage
helps)
 Institutions looking for diversification of
risk
 Some HFs don't have high returns,
focus on diversification element


5. Fee Structures
2% Administration Fee / Management
Fee
 20% Performance fee

Hurdle Rates
 High Water Marks
 Lock up periods
 Hfs are Performance Seekers not
Asset Gatherers


6. 4 Main Types of Hedge Funds
1.
2.
3.
4.
Long / Short Strategies
Relative Value & Arbitrage
Event Driven
Distressed securities
5.
Other Alternatives = wine, coin,
collectables

Main objective = uncorrelated returns
(to reduce investment risk)

7. AUM Per Strategy

8. Regulations


Cat IIA - Manager
Regulation 28 – Pension funds
◦ 15% Alt
◦ 10% HFs or PE
◦ 2.5% per single hedge fund

Industry is Self Regulated




G20 Requirements
Systemic Risk Explained
Proposed HF framework
New move to CISCA

9. Graph of Industry AUM

10. Retail Vs Private






Retail = UCITS (Undertaking for
Collective Investment in Transferable
Securities)
Professional Investors = PI-Funds
Over regulation will increase barriers to
entry
Will move money to the bigger players
Lead to Indifferent Performance
Lead to extra fees – absorbed by

11. Comments from the industry on
the Proposed Framework

Retail is based on UCITS model
◦ Expensive and Restrictive

Must have a PIF model
◦ Driven by investors understanding for its
controls
◦ Current proposal is a good step
◦ No sense of urgency – HFs are
progressing well with self regulation

12. Word from the Industry
Hedge funds are performance seekers
 Not asset Gatherers
 Small opportunities to capture Alpha,
HFs are generally small, scalability
problems
 Do not want to grow too fast or too big
 Raising Regulations on AUM to
comply with perceived CISCA current
requirements for unit trusts will lead to
damage


13. Sources of Capital
HNWI
 Family Offices
 Fund of Funds
 Foundations and Endowments
 Pension Funds / Life Funds
 Capital Introductions via PB
 Seed Capital / Hedge Fund Hotel


14. Global Best Practices followed in
SA

3rd Party Fund Administration (IDS)
◦ NAV Package


Multiple Prime brokerages
3rd party Custody
◦ Fund Manager doesn't receive the money at any
point

Following these practices avoids Madoffs and
other Ponzi Schemes (Abante Capital /
Herman)

15. Hedge Fund Ecosystem
Fund Manager
 Prime Broker (1-2 PBs)
 Custodian
 Fund Administration
 3rd Party Marketing / Public Relations
 Legal and Compliance
 Risk Management


16. References
Novare 2012 Report
 AIMA SA HF Booklet
 Interviews
