Similar to other international initiatives, South African regulators intend to bring the hedge fund sector within the scope of current legislation in order to create a more transparent environment to enhance investor protection.
The hedge fund industry is evolving and is characterised by rapid growth, increased usage of new and complex investment instruments, and high levels of leverage. Challenges faced by the industry and regulators alike include lack of transparency and uniform disclosure requirements. In an unregulated environment, this raises possible systemic concerns as the exposures and risks are generally unknown and unquantified.
In this regard, the FSB in 2004 initiated a formal process with the assistance of the Alternative Investment Management Association - SA Chapter. The FSB is consulting with various stakeholders to determine an appropriate regulatory framework for the sector. Issues under discussion include an appropriate tax regime for the hedge fund industry as well as enhanced "fit and proper" requirements for hedge fund managers.
South Africa's hedge funds industry had about USD2.8bn in assets at end-2006.
(Source: Financial Stability Review, March 2007)