The recent high levels of volatility experienced by local and global stock markets has once again highlighted the need for investors to effectively diversify their retirement portfolios. According to Thomas Schlebusch, CEO of Blue Ink Investments, investors who wish to diversify their retirement investments should be looking to South African hedge funds, which are currently offering attractive risk adjusted returns and low volatility levels…
Investors have previously had negative perceptions of hedge funds due to overseas funds related to Bernie Madoff, Long Term Capital and others. South African hedge funds though, have performed well, have a high degree of transparency, are highly liquid and help retirement funds to retain value for their members.
Long touted as an investment class that thrives and can generate positive returns in volatile market conditions, hedge funds are not the holy grail, but their real benefit is to cut out some of the downside risk through means not available in more traditional funds, and should therefore form an essential part of a retirement fund portfolio.
During the global financial meltdown in 2008, the Blue Ink Hedge Fund Composite, which monitors all hedge funds in South Africa, ended the year 2% in positive territory. Over the course of 2008, 60% of local hedge fund managers were in positive territory and 30% beat cash returns. “In contrast, the overall equity market was down by around 23% in 2008, so hedge funds did pretty well.
While hedge funds underperformed the overall market in the 2009/10 recovery, they still performed well when compared with cash.
However, hedge funds are not well understood, causing many investors and retirement fund trustees to shy away from them.
Retirement fund trustees need to educate themselves more about hedge funds, including Fund of Hedge Fund opportunities. South African hedge funds are highly regulated, providing significant protection and peace of mind for investors.