hedge fund myths - novare · 2016. 11. 21. · hedge fund-speciﬁc investments. hedge fund...
HEDGE FUND MYTHS
Hedge funds aren’t regulated and the
industry is secretive and mysterious...
Hedge funds are heavily regulated
HEDGE FUNDS ARE
! ? !
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
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
charge high fees
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.
Hedge Funds make use of
exotic assets and investment
strategies that aren’t
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.
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