Clade Investment Management has launched a South African Investable Hedge Fund Index (SAIHF) and a range of investable index products tied to it.
The SAIHF, a capital-weighted index of South African hedge funds, is the first product that allows investors to access this attractive investment class at a low cost and without incurring significant fund specific risk.
It contains four strategy specific sub-indices: Fixed Income; Long/Short Equity; Market Neutral and; Arbitrage Trading, but only funds that meet reporting requirements and that have meaningful track records or assets under management qualify for inclusion.
The 28 qualifying funds have widely varying returns and risks. However, while individual funds can be volatile, the SAIHF offers a low volatility investment option with high-risk adjusted returns and a low correlation to the JSE.
Over the past 12 months the SAIHF has returned 23.25 per cent, with a Sharpe Ratio (measure of return per unit of volatility) of 2.59, and a Standard Deviation of 6.34. Significantly, the SAIHF has a correlation of only 0.22 to the JSE ALSI, implying that there is very little correlation between the performance of the SAIHF and the JSE. As a result an investor will reap significant diversification benefits by holding a portion of their portfolio in the SAIHF.
Carl Liebenberg, CEO of Clade Investment Management, believes that institutional investors and knowledgeable retail investors will "embrace an accurate and reliable benchmark of hedge fund performance which provides investors with access to the investment class without exposure to firm specific risk."
"There is considerable interest in hedge funds, which have performed exceptionally as an asset class over the past two years," he says. "But the high level of perceived firm specific risk combined with the "black box" technology approach of most firms and the high fees charged by multi managers has inhibited investment."
According to Liebenberg the SAIHF has already attracted strong interest from domestic institutional investors who are looking at a low cost and low risk method of diversifying into a new asset class that has a low correlation to existing classes. He believes that the product will also appeal to offshore institutional investors who are looking for access to the South African hedge fund market but who have been constrained by the lack of capacity of SA managers and the firm specific risks inherent within individual funds or fund of funds.
The SAIHF's stringent reporting and administrative requirements ensure that only well administered funds are included in the index. And the fees charged by SAIHF are in line with international indices (0.75 per cent per annum, compared to a typical fund of fund which charges 1.2 per cent plus 20 per cent performance fees). This ensures attractive risk adjusted net returns.
However, with a minimum investment amount of RAND 1 million SAIHF is not for everyone, and is clearly aimed at institutional investors and larger and more knowledgable private investors who wish to balance their portfolios.
For more information on investable indices please click here