Steinhoff share collapse impacts on hedge funds

STEINHOFF’S share-price collapse in December claimed at least one hedge fund, which elected to close after it ended the month 32.8% lower.

Kaizen Asset Management had decided to “wind down” its strategichedge fund as a result of underperformance and a reduction in assets to an “unsustainably low level”.

“The Steinhoff scandal had a material, negative impact on the portfolio’s performance in December, given that it was one of our highconviction positions,” Kaizen, which has since closed its doors altogether, said in a note to investors.

Hedge funds differ from regular, long-only equity funds in that they use a range of tools – such as shorting, which is to bet on a stock price falling – to limit risk and reduce correlation to equity and bond markets.

These funds are able to gear positions in their portfolios (inject debt), which can magnify losses if not properly managed. The Kaizen fund in question, which ended 29.6% lower last year versus the top 40’s 19.5% climb, was not the only Steinhoff casualty.

Abax’s constellation hedge fund, a long/short equity fund, lost 18.7% in December and 11.9% last year.

Ashburton’s dynamic equity hedge fund, meanwhile, lost 11.63% in December, ending the year 39.04% lower, following three years of above-benchmark returns. The fund, which had no exposure to Steinhoff, EOH, Consolidated Infrastructure Group or Resilient, was hurt by poor performance in smalland mid-cap companies.

On the other hand, Fairtree’s Assegai equity long/short fund returned 22.47% last year, reflecting the divergence in markets last year. December was a particularly binary month.

Portfolios that wrongly called the ANC’s elective-conference outcome by, for example, shorting the rand or banking stocks, would also have taken a beating. Kaizen appears to be the only asset manager that has shut down entirely, however.

The Financial Services Board’s Caroline da Silva confirmed that Kaizen had applied to lapse its licence. The Financial Services Board had asked all asset managers to report on losses as a result of Steinhoff and would question further where losses had been significant, said Da Silva. —