Regulation
Draft regulations designed to improve oversight of hedge funds and bolster investor protection have been unveiled by the Treasury and Financial Services Board (FSB) in South Africa.
The proposals are subject to public comment and are likely to be finalised later this year. The regulator is seeking to bifurcate the industry between Retail Investor Hedge Funds (RIHFs), which will be permitted to market to all investors, and Qualified Investor Hedge Funds (QIHFs), that will only be allowed to target institutional allocators.
QIHFs will be subject to disclosure requirements, which will force them to provide details of their funds and counterparties, and they must lodge annual returns to the Registrar. Meanwhile, RIHFs will be subject to stricter liquidity terms and leverage limits. They will also be more restricted in what they are permitted to invest in.
The South African hedge fund industry remains small and manages approximately R40 billion ($3.97 billion), according to a study by Novare Investments, an Africa-focused asset manager. The country’s investor base is still relatively sceptical of hedge funds. Direct pension fund investments account for just 5% of South African hedge fund Assets under Management (AuM) despite rules being introduced in 2011 allowing pension plans to increase their exposure limits to hedge funds from 2.5% to 10%.
Funds of hedge funds are the largest capital allocators representing 63% of industry assets. High net worth individuals (HNWIs) comprised 16% of hedge fund assets, an increase from 12.4%. Foreign investors remain elusive though as South Africa’s managers are still small.
Hedge funds in South Africa have also suffered bad press over the last two years, which could have deterred investors. In July 2012, hedge fund manager Herman Pretorius killed his business partner before turning the gun on himself after a visit from the FSB, which was reportedly investigating whether Pretorius was running a Ponzi scheme.
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South Africa
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