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
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.