SA hedge fund assets rise 27% to reach an all-time high

Larger hedge fund managers attracted the bulk of net cash inflows.

Assets managed by South African hedge funds rose more than R10 billion, or 27%, in the year to end June 2014 to R53.6 billion on a combination of positive performance from managers, especially equity focused hedge funds, as well as net inflows into the industry.

According to the Novare Investments South African Hedge Fund Survey 2014, released in Cape Town today, the equity long/short hedge fund strategy received net cash inflows of R3.5 billion, while equity market neutral funds were net receivers of approximately R900 million in capital, the first time in six years that the strategy has had net inflows.

The strategy that lost the most capital during the 12-month period was fixed income with total net outflows exceeding R1.4 billion.

Eugene Visagie, Portfolio Manager at Novare Investments, commented that the 2014 edition marks the eleventh year of the survey. “The findings represent the position of locally domiciled hedge funds over the 12 months to 30 June 2014. This year, 104 different hedge fund mandates and 58 asset management companies participated.”

Larger hedge fund managers attracted the bulk of net cash inflows, 63.6% of which were allocated to companies with hedge fund assets exceeding R2 billion, followed by managers with hedge fund assets of between R1 billion and 2 billion who received 20.5% of net cash flows.

Eight new funds were launched in the year to June 2014, housing a total of R690 million. Of these, 50% were equity long/short funds. Half of the assets allocated to new funds were from funds of hedge funds, followed by 30% from high net worth individuals.

Seven funds, mostly fixed income funds and multi-strategy funds, closed down and returned investor capital.

Said Visagie, “Where strategies are concerned, the equity long/short strategy continued to dominate, representing 59.9% of industry assets compared to 52.5% of assets 12 months earlier. Fixed income hedge funds reduced in relative size from 15.7% in 2013 to 11.6% in 2014 due to fund closures, relative underperformance and net outflows.

“Looking at the industry’s track record, South African hedge funds continued to mature with 78.6% of industry assets now managed by managers with hedge fund experience exceeding five years.”

Funds of hedge funds remained the largest allocators of capital to hedge funds but their share continued to decrease, from 63.0% in 2013 to 61.8% in 2014. The allocation from high net worth individuals declined from 16.0% to 12.6% in 2014

“We expect that recently announced regulation will stimulate growth in industry assets. Amongst the advantages is enhanced transparency, which is likely to result in more retail investors considering including hedge fund strategies in their portfolios,” said Visagie.