Com­plex tran­si­tion for an in­dus­try

Financial Mail - Investors Monthly - - Feature: Hedge Funds -

The tran­si­tion of hedge funds from the un­reg­u­lated to reg­u­lated space was an enor­mous un­der­tak­ing. Within 18 months, close to 300 in­di­vid­ual port­fo­lios have been reg­is­tered and ap­proved by the Fi­nan­cial Ser­vices Board (FSB), writes Jo­hann Barnard.

Ac­cord­ing to fig­ures from the reg­u­la­tor, the first tranche of funds was ap­proved in Novem­ber 2015 and the launch was early last year.

Fol­low­ing the ini­tial tranche of ap­provals, manco and port­fo­lio ap­provals picked up from April last year through to Septem­ber, by which time the num­ber of ap­proved funds had grown to around 270 port­fo­lios.

Graeme Rate, head of hedge funds at Sanne Group, a global provider of ad­min­is­tra­tive and man­age­ment com­pany (manco) ser­vices to the in­dus­try, says it is still early days for man­cos, in­vest­ment man­agers and ad­min­is­tra­tors in the new, reg­u­lated en­vi­ron­ment.

“We’ve seen a rel­a­tively muted ap­petite from in­vestors that haven’t been in­vested in the hedge fund space prior to reg­u­la­tion,” he says.

“In­vest­ment man­agers are see­ing the move into the reg­u­lated space has come with an ad­di­tional cost com­po­nent in terms of reg­u­la­tory com­pli­ance. There has also been a lack of clar­ity around cer­tain is­sues, such as TER [to­tal ex­pense ra­tio] and TC [to­tal cost] re­port­ing.

“There are a num­ber of is­sues that still need to be worked through . . . but in a fledg­ling en­vi­ron­ment these is­sues take time to iron out.”

These types of teething prob­lems are in­evitable, par­tic­u­larly for in­vest­ment prod­ucts that can be com­plex and that for many years have op­er­ated in an un­reg­u­lated en­vi­ron­ment.

Some of the changes, for ex­am­ple, re­late to man­age­ment and gov­er­nance prac­tices as well as the way funds were struc­tured.

Rate says these changes are all pos­i­tive for the in­dus­try and that an un­tapped mar­ket is now avail­able to in­vest­ment man­agers that have pre­vi­ously worked in a rather re­stricted mar­ket.

“What we’ve been un­der­tak­ing as a manco is in­ter­act­ing with the broader in­vest­ment mar­ket, such as with Lisps [linked in­vest­ment ser­vice providers], to un­der­stand the im­pli­ca­tions and their re­quire­ments for port­fo­lios to be hosted on their plat­forms and what we as an in­dus­try need to de­liver to achieve this.”

Graeme Rate … still early days

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