Novare launches South Africa’s first retail hedge fund

Independent investment pioneers, Novare, is proud to announce the launch of South Africa’s first retail fund of hedge funds product.

While hedge funds were previously only available to institutional investors, Novare now offers access to financial advisors and individual investors. Eugene Visagie, Head of Hedge Fund Investments at Novare says that this launch is in keeping with Novare’s tradition of being first to market with innovative products.

“One of the main benefits of including a hedge fund in an individual investor’s portfolio is long or short exposure to the market, allowing the fund to profit from both rising and falling markets,” says Visagie. “This means individual investors are able to use hedge funds as a risk-reducing strategy while delivering absolute returns. In addition, hedge funds typically exhibit lower correlation with financial markets, which can reduce overall portfolio volatility if used in combination with other traditional asset classes.”

Current economic conditions locally and globally are putting traditional asset class returns under pressure. However, these volatile and low-return economic environments provide the conditions for hedge funds to thrive.

“The merits of this strategy were proven under the current conditions. On average, the Novare fund of hedge funds product delivered an annualised return of 10.0% for the 2015 calendar year. In comparison, the All-Share Index, All Bond Index, and cash delivered 5.1%, -3.9%, and 6.4%, respectively (Inet, 2016),” says Visagie.

Hedge funds were declared collective investment schemes on 1 April 2015. The main aim of the regulation is to protect investors in hedge funds and assist with monitoring systemic risk (inherent market risk or undiversifiable risk), while promoting the integrity of the industry and encouraging financial market development. As most hedge funds in South Africa operate as pooled investments, it was decided that regulation should be in accordance with existing collective investment regulation.

“There is a general misconception that hedge funds invest in risky assets, but South African hedge funds invest in similar instruments as unit trusts, such as bonds and equities,” explains Visagie. “However, when compared to traditional unit trusts, they have more flexibility in terms of deploying financial instruments.”

The new regulations make provision for two types of hedge funds – retail investor hedge funds and qualified investor hedge funds. Of the two, retail hedge funds operate under more stringent regulations, and are therefore seen as less risky for investors.

“A further distinction between the two fund classes is liquidity,” highlights Visagie. “Retail hedge funds will be required to offer a maximum of one calendar months’ notice period to facilitate a redemption, with qualified investor hedge funds requiring a maximum of 90 days.”

“While hedge funds may appear riskier to investors, these risks have to be seen in accordance with the slow returns currently generated by traditional stock markets. Returns below the rate of inflation represent a loss in real terms, which represents an investment risk in itself,” Concludes Visagie.