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South Africa’s hedge funds steady in turmoil

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The South African hedge fund industry remained stable through the recent market turbulence with assets under management of ZAR29.7bn at 30 June 2009 – just two per cent lower than the previous year’s ZAR30.3bn, according to a survey by Novare Investments.

Even though the industry recorded its first year of net outflows in the 12 months to June 2009, the total size of industry outflows (including estimated outflows as a result of funds dissolved) netted against inflows amounted to an approximate ZAR3.3bn, less than 11 per cent of the industry size a year ago.

The 12 months to June 2009 was another strong year for new fund launches, with the majority (65 per cent) of new funds started by already established hedge fund management companies. A third of the funds launched follow equity market neutral strategies, followed by equity long/short funds with a variable bias.

Reporting and transparency to investors continued to improve, with a noteworthy increase in the percentage of funds reporting daily.

Net as well as gross exposure levels have reduced significantly over the past year, with trading activity (portfolio turnover) picking up.

Redemption notice periods have seemingly shortened, with a markedly lower percentage of funds requiring three months’ notice. Hedge funds managing nearly three quarters of all local hedge fund assets require only one month’s notice for investors to redeem.

“While some local funds had to deal with client outflows, just as many saw net inflows over this period when the performances from local hedge funds met expectations. With managers more accommodating in terms of lower fees and regular reporting, South African hedge funds look poised for growth,” says Carla de Waal, portfolio manager at Novare Investments, who compiled the report.

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