FIRST NEW REG­U­LATED

The world of hedge fund in­vest­ments re­cently opened up to retail in­vestors with the launch of a lo­cal fund fol­low­ing the of­fi­cial regulation of hedge funds in SA this month un­der the Col­lec­tive In­vest­ments Schemes Con­trol Act. re­ports

CityPress - - Business -

It will in­vest in a broad range of par­tic­i­pa­tory in­ter­ests and other forms of par­tic­i­pa­tion in col­lec­tive in­vest­ment schemes.

How­ever, in­vest­ments will be al­lo­cated to a min­i­mum of six port­fo­lios, with a max­i­mum of 30% al­lo­cated to a sin­gle port­fo­lio.

While the fund port­fo­lio does not ap­ply lev­er­age, the un­der­ly­ing port­fo­lios may ap­ply lev­er­age.

The fund’s bench­mark is cash plus 6%, net of fees. The fund is suited to in­vestors with a mod­er­ate to ag­gres­sive risk pro­file and the min­i­mum in­vest­ment amounts are R1 000 a month or a R50 000 lump sum.

New leg­isla­tive re­quire­ments

Al­though prod­uct regulation is only now com­ing into ef­fect, hedge fund as­set man­agers have been reg­u­lated un­der the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices Act since Oc­to­ber 2007 un­der a sep­a­rate li­cence cat­e­gory.

This leg­is­la­tion also reg­u­lates unit trusts, and places the over­sight and su­per­vi­sion of hedge funds un­der the ju­ris­dic­tion of the Fi­nan­cial Ser­vices Board (FSB).

Hedge funds have pre­vi­ously been avail­able in South Africa, but were only ac­ces­si­ble by high-net-worth in­vestors who were able to in­vest amounts of R10 mil­lion and up, and who were com­fort­able to do so in the knowl­edge that the hedge fund mar­ket was un­reg­u­lated in South Africa.

Yonela Mak­wetu, in­vest­ment an­a­lyst at in­de­pen­dent mul­timan­ager No­vare In­vest­ments, says: “Some of the re­sul­tant re­quire­ments for hedge funds in­clude ad­di­tional re­port­ing to in­vestors and to the FSB, en­hanced risk mon­i­tor­ing, as well as in­de­pen­dent trustee over­sight.

“A man­ager must es­tab­lish, doc­u­ment and main­tain a risk man­age­ment pol­icy pro­vid­ing for the daily man­age­ment of op­er­a­tional risk, busi­ness risk, liq­uid­ity risk and credit-coun­ter­party risk.”

The new reg­u­la­tions dis­tin­guish be­tween retail and qual­i­fied in­vestor hedge funds.

Retail in­vestor hedge funds will be open to in­vest­ments from the pub­lic and will be sub­ject to stricter rules than qual­i­fied in­vestor hedge funds aimed at more sea­soned in­vestors, in­clud­ing in­sti­tu­tional in­vestors such as re­tire­ment funds.

Un­der the new reg­u­la­tions, retail hedge funds will of­fer a max­i­mum no­tice pe­riod of a cal­en­dar month to fa­cil­i­tate re­demp­tions, with qual­i­fied hedge funds re­quir­ing three cal­en­dar months.

Retail hedge funds will also have to re­port more fre­quently to the FSB than qual­i­fied funds.

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