HEDGE FUND MYTHS

BUSTED

PERCEPTIONREALITYVS.

Hedge funds aren’t regulated and the

industry is secretive and mysterious...

Hedge funds are heavily regulated

HEDGE FUNDS ARE

RISKY INVESTMENTS

! ? !

Hedge fund asset managers have been regulated under the Financial Advisory

and Intermediary Services Act (FAIS) since October 2007 under a

separate license category, CATIIA.

In 2015, Hedge funds were included under the regulation of the local Collective Investment Schemes Control Act also known as CISCA.

In reality, this strategy aims to achieve

positive returns at a reduced level of risk

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Characteristics making hedge funds unique includes the use of deriva-

tives, short selling, leveraging etc. to be able to extract positive

performance in both upward or downward trending financial

markets. Regulation of course adds another layer of protection

for investors.

Hedge Funds

charge high fees

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The local hedge fund industry

does not follow the typical high-fee structure According to the 2016 Novare Hedge Fund Survey results, a decrease in annual management fees has been seen, combined with funds employing a higher hurdle rate for performance fees. Fees have always remained topical and the hedge fund industry has not been exempt.

Hedge funds produce

big swings in performance

The advantages of Hedge Fund managers having more investment tools at their disposal is that they can take advantage of and profit from both rising and falling markets, thereby providing capital protection.

The industry has experienced uninterrupted and tremendous growth in assets of 118.3% over the past five years – a sign of stability and growth.

The extent of the draw-down in negative markets is less and the recovery is quicker

Hedge funds are only for the rich or big corporates Retail Hedge funds are

easily accessible to the general public

Under the new regulation, hedge funds will be more accessible to a broader investor base. A retail investor hedge fund is defined as a hedge fund in which any investor may invest because it meets the requirements set out by the FSB.

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Hedge Funds make use of

exotic assets and investment

strategies that aren’t

well known

Hedge funds invest in the same securities as more traditional investments such as unit trustsHedge funds are made up of the same assets but have a wide range of tools available to use in order to optimise these assets, such as deriva-tives, short selling, leveraging etc. This means hedge funds have more ways of protecting assets and delivering positive returns irrespec-tive of market direction.

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Hedge funds are managed

by fly-by-night managers

Hedge funds are managed by

highly qualified asset managers

73.2% of industry assets are managed by hedge fund managers with more than 8 years’ experience – this excludes the years spent working with traditional funds, prior to their move into hedge fund-specific investments. Hedge fund managers have immense understanding and vast years of experience.

Hedge funds are managed by

small and unknown

boutique asset managers

Hedge funds form part of most of SA’s largest financial service provider’s offeringMost hedge funds’ assets form part of a well-diversified asset management business with a multitude of investment offerings.

The lion share of assets are still being managed by asset managers that manage total assets exceeding R2- billion (translating into 85.7% of hedge fund assets being managed by these asset managers).

The South African hedge fund industry is ever more transparent and accessible to retail investors with increased oversight and regulation from the Financial Services Board. The industry has grown in leaps and bounds over the years, with operational sophistication and efficiency

being at the forefront.

www.novare.comFollow us @novareholdings Connect with Novare Holdings Read the full survey here

Despite the misconception that hedge funds are risky investments, South African-based funds are in fact relatively conservative. Interestingly, many South African investors still perceive hedge funds as the riskier investment when compared to other more traditional and more familiar investment vehicles/ strategies.

This document is confidential, private and intended solely for the addressee(s) and clients of Novare Investments (Pty) Ltd (Reg. Nr. 2000/018539/07) (“NI”). Copyright in this document created by NI will remain vested in NI and will not be transferred to anyone in part or whole without the prior written consent of NI. Past performance is not indicative of future returns which may go up or down. No guarantees are provided in relation to portfolio investment performance. NI’s schedule of fees and charges is available on request. The information contained in this report is for indicative purposes only and are not deemed to be final. It is provided in good faith and has been derived from sources believed to be reliable and accurate. However, no representation or warranty, express or implied, is made in relation to the accuracy or completeness of this information. The opinions and estimates expressed herein constitute the judgement of NI and are subject to change without notice. This document does not constitute an offer to buy or a solicitation of an offer to buy or sell units in any jurisdiction in which an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer of solicitation and is for information purposes only. NI is an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act No 37 of 2002. FSP No. 757