South Africa’s hedge fund industry can compete very well internationally says Opalesque, which recently held a Cape Town roundtable to highlight what it regards as the “vast growth opportunities”.
According to the alternative investment sector news service, overseas investors who take a deeper look at the returns are invariably surprised when they see the extent and the persistence of alpha generation in the South African market vis-à-vis global hedge fund managers.
“The South African equity market as a percentage of gross domestic product [GDP] is running at about 250%,” says Opalesque. “This is unique across the globe – in emerging as well as developed markets there are very few markets that look like that.
“Because this very deep, very liquid equity market is dominated by long-only fund managers, that on its own creates opportunity for hedge fund managers at the periphery extracting alpha from the opportunity set. Local South African institutions and high net worth investors have constantly increased their investments in local hedge funds over the past two years.”
All current South African hedge funds will fall under the Collective Investment Schemes Control Act (CISCA) and become qualified investor funds (QIFs) once draft regulations become effective, and the funds are declared as falling under CISCA by South Africa’s minister of finance. This is expected to happen by 1 April 2015.
Fund managers can then also change a QIF into a retail fund or launch new retail investor hedge funds (RIHF) and freely solicit from the public. A South African RIHF is similar to a UCITS product where the managers have a narrower mandate, although possibly slightly broader than what the current UCITS framework allows. Investment advisers and wealth managers have already expressed interest in investing into this new breed of hedge funds, and are willing to be educated about the strategies and opportunities they offer.
The development and growth of the South African unit trust industry, operating within a well-regulated environment has been significant. The CISCA regulations offered collective investment schemes significant opportunities to distribute, solicit, and develop new funds for the public. Industry insiders therefore see substantial similar growth opportunities for South African hedge fund managers once they operate under CISCA and have similar opportunities to solicit and distribute their funds.
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