Award-winning Novare Fund celebrates 20 years of outperformance by defining market odds

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Novare Mayibentsha Moderate Qualified Fund of Hedge Funds has consistently grown clients’ wealth and protected their assets.

Novare Holdings, one of South Africa’s fund of hedge funds (FoHF) pioneers, is celebrating 20 years of outperformance with its award-winning Novare Mayibentsha Moderate Qualified Fund of Hedge Funds.

The fund has consistently met its return objectives and safeguarded investors’ capital, even during the most volatile market conditions.

This includes navigating global events such as the 2008 financial crisis, the US-China trade war, the COVID-19 pandemic, Russia’s invasion of Ukraine, and the Chinese stock market crash. Domestically, the fund has successfully weathered challenges such as rand devaluation, bond market fluctuations, and slow economic growth.

“The significance of this milestone is delivering on what we promised 20 years ago – providing downside protection and limiting our drawdowns during market downturns using excellent risk management tools,” said Derrick Roper, one of the fund’s founders. “Together with that, we’ve provided diversification benefits to our clients and uncorrelated returns when other asset classes have struggled.”

The flagship fund won the coveted HedgeNews Africa Award Fund of Hedge Funds category in 2012 and 2020. The name “Mayibentsha” comes from IsiXhosa, meaning “let it be new,” which the team chose to capture the spirit of what they were trying to do in pushing the fund of hedge funds concept in the South African market, Roper said.

Before starting the Novare Mayibentsha fund, Novare studied international markets and the development of hedge funds, mainly how pension and endowment funds successfully used the alternative asset class to grow and diversify their investments. 

The firm concluded that a fund of hedge funds was the best route to follow, even though there were a limited number of hedge funds in South Africa with a proven track record at the time. A fund of hedge funds pools assets from multiple investors and then picks various specialised funds to invest across different strategies, markets and sectors. This provides uncorrelated returns to traditional asset classes and improves diversification to an overall portfolio.

While hedge funds were initially perceived as “a black box” in the South African market, the industry worked together to educate investors that it wasn’t a speculative tool but a risk-mitigation instrument when markets fall or are volatile. Roper said the September 11, 2001, attacks on the US and the dot-com bubble in the late 1990s helped spark some interest.   

Since its inception, the fund has returned an annualised 10.1%, compared with 9.1% for its benchmark. The Novare Mayibentsha Moderate Qualified Fund of Hedge Funds has only had one negative year, in 2008, during the height of the global financial crisis.

Roper recalls that even then, Mayibentsha had enough cash to meet the needs of international investors who had over-leveraged their borrowings and had to make withdrawals. This contrasted with other institutions, including prominent global players, who struggled to provide liquidity, leaving investors unable to repay creditors. 

In 2009, the firm won the Best Emerging Market Fund of Hedge Funds accolade by HMFWeek at the US Performance Awards in New York.

Novare has established itself in the hedge fund industry through its range of offerings and the annual Novare Hedge Fund Survey. With almost 19 years of industry research, the firm surveyed 64 asset managers in its latest edition, collectively managing over 161 hedge funds.

To ensure continued performance, Novare is committed to talent development, said Kagiso Mathole, the portfolio manager of the Mayibentsha Moderate Qualified Fund of Hedge Funds. The firm strongly emphasises cultivating skills by training analysts to become successful hedge fund managers and actively seeking out promising graduates who share the company’s culture and values. 

The fund is a qualified investor FoHF with the long-term objective of achieving a return in line with SA consumer inflation +3.5% over a rolling three-year period. This objective serves as Novare Mayibentsha Moderate Qualified Fund of Hedge Funds’ benchmark and hurdle rate. The fund has consistently met and exceeded this objective by carefully selecting hedge fund managers with proven track records, diverse strategies, and robust risk management. 

Over the past two to three years, the fund has adopted a defensive stance given the volatility experienced in global and local markets, Mathole said. He said the team is considering adding one or two hedge funds to the portfolio to capture potential upside in equity markets while mitigating downside risks.

Hedge funds are increasing in popularity, and there are hopes that the industry may experience further growth following some legislative changes. This includes allowing pension funds to invest 10% of their assets into hedge funds and 15% into private equity investments. These two asset classes were previously classified as one, and retirement funds could invest up to 10%.

The Financial Sector Conduct Authority, which regulates the financial services industry, is also reviewing the assets that Collective Investment Schemes like unit trusts can hold, which may expose retail hedge funds to other avenues of growth.

“Interest in the asset class has increased and, together with the positive developments on the regulation front, will indeed help grow the industry further,” said Mathole.

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