The latest comparison reveals hedge funds focusing on investing in equities are delivering three times the return of the JSE All Share Index. That reverses a recent trend the promoters of Exchange Traded Funds have been making much of. We can interpret this one of two ways. The asset management industry will prefer the assessment of former RMB and Sanlam and now Credo CIO Deon Gouws. He told me in London last month that because of unique circumstances here, SA money managers are, pound for pound, the best on earth. Alternatively, you might take a less flattering view that the JSE itself is heavily skewed with just five stocks accounting for 40% of the index; the top 10 for 55%. So get the direction of this handful of stocks right,and you’re certain to beat the indices. What a fertile field for marketers – on both sides. – Alec Hogg
by Colin McClelland
(Bloomberg) — South Africa hedge fund managers betting on equities posted returns more than three times higher than the nation’s benchmark stock index in the year to the end of June, according to an annual survey by Novare Investments Pty Ltd.
The so-called long/short equity funds, which bet some stocks will rise and others will fall, returned an average of 14.7 percent in the year while the FTSE/JSE All Share Index gained 3.7 percent, the survey showed. Managers placed 37.8 billion rand ($2.75 billion), or 61 percent of hedge fund assets, into such accounts. Assets under management increased to 62 billion rand from 53.6 billion rand in the previous period, according to the survey.
“Despite heightened volatility in the local equity market, the equity long/short strategy fared relatively well,” Cape Town-based Novare said in its 12th survey, released on Monday. “The industry grew assets mainly as a result of solid fund performance.”
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The South African hedge fund industry is seeking to expand its footprint. Rules that took effect Sept. 30 seek to attract more money by creating a retail-friendly category and reducing the impact of what some managers termed the global industry’s “cowboy image” by increasing transparency and oversight.
Fixed income funds were the second-most popular, accounting for 14 percent of assets, delivering an average return of 7.7 percent, Novare said. Funds with an equity-market neutral strategy had 8.7 percent of assets while posting an average return of 9.9 percent, according to the survey. Commodity- focused funds held 3.7 percent of assets, according to the survey.
Sharpe Ratio
The equity long/short strategy earned an average Sharpe ratio, which evaluates risk-adjusted return, of 2.17, followed by 1.63 for fixed income and 1.52 for equity market neutral funds, Novare said.
Managers added 16 funds and dissolved six, leaving 111 in place at the end of the year, the survey showed. Three-quarters of assets are managed by companies with more than 5 billion rand in total assets, Novare said.
More than half of managers charge fees of 1 percent of assets under management plus 20 percent of profit, according to the survey. Funds representing 16 percent of assets include claw back provisions in their subscription agreements, allowing investors to reclaim fees if the manager fails to hit performance targets, Novare said.
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Funds of hedge funds remained the leading type of allocation with 57 percent of the market even though it slipped 4 percent from the previous period, Novare said. Deposits from high net worth people rose to 26 percent of assets from 14 percent, it said. Pension funds allocated just 0.1 percent of assets, down from 8.4 percent after a large fund with mostly pension fund investors closed, the survey showed.
More than 7 percent of funds were hard closed, meaning that no further capital would be accepted, while fewer than 10 percent were soft closed, only accepting money from current investors, according to Novare. The remaining 83 percent were accepting new investors, it said.
South Africa’s hedge funds remain a small part of the country’s fund industry, which had assets of 1.8 trillion rand after an inflow of 77 billion rand during the year, according to the Association for Savings and Investment South Africa.
