Presentation - Financial Services Board (Introducing Hedge Funds)

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A presentation that Andreas and my self (Jacques) presented on behalf of the Financial Services Board both in Cape Town and Pretoria as well as the University of Stellenbosch

Published in: Economy & Finance, Business
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Presentation - Financial Services Board (Introducing Hedge Funds)

  1. 1. FSB Presentation
  2. 2. What is a Hedge Fund?  Define Long only then HF: ◦ Long only = good news ◦ HF = all news  Hedge funds may make use of short selling, leverage and derivatives to assist in developing an alternative investment strategy, to generate absolute returns that should in essence be uncorrelated to the markets.
  3. 3. Historical Context         1949 Alfred Winslow Jones First Fund of HFs Created 1969 1993 some hedged trading in Prop Desks 1995 First SA hedge fund appears 1998 LTCM Crash (Systemic Risk) 2000 Tiger Fund closes 2003 AIMA SA launched (Now under ASISA) 2012 Industry AUM record at R33 Billion
  4. 4. Reasons I want to invest in HFs Investors seeking Alpha (leverage helps)  Institutions looking for diversification of risk  Some HFs don't have high returns, focus on diversification element 
  5. 5. Fee Structures 2% Administration Fee / Management Fee  20% Performance fee  Hurdle Rates  High Water Marks  Lock up periods  Hfs are Performance Seekers not Asset Gatherers 
  6. 6. 4 Main Types of Hedge Funds 1. 2. 3. 4. Long / Short Strategies Relative Value & Arbitrage Event Driven Distressed securities 5. Other Alternatives = wine, coin, collectables  Main objective = uncorrelated returns (to reduce investment risk)
  7. 7. AUM Per Strategy
  8. 8. Regulations   Cat IIA - Manager Regulation 28 – Pension funds ◦ 15% Alt ◦ 10% HFs or PE ◦ 2.5% per single hedge fund  Industry is Self Regulated     G20 Requirements Systemic Risk Explained Proposed HF framework New move to CISCA
  9. 9. Graph of Industry AUM
  10. 10. Retail Vs Private       Retail = UCITS (Undertaking for Collective Investment in Transferable Securities) Professional Investors = PI-Funds Over regulation will increase barriers to entry Will move money to the bigger players Lead to Indifferent Performance Lead to extra fees – absorbed by
  11. 11. Comments from the industry on the Proposed Framework  Retail is based on UCITS model ◦ Expensive and Restrictive  Must have a PIF model ◦ Driven by investors understanding for its controls ◦ Current proposal is a good step ◦ No sense of urgency – HFs are progressing well with self regulation
  12. 12. Word from the Industry Hedge funds are performance seekers  Not asset Gatherers  Small opportunities to capture Alpha, HFs are generally small, scalability problems  Do not want to grow too fast or too big  Raising Regulations on AUM to comply with perceived CISCA current requirements for unit trusts will lead to damage 
  13. 13. Sources of Capital HNWI  Family Offices  Fund of Funds  Foundations and Endowments  Pension Funds / Life Funds  Capital Introductions via PB  Seed Capital / Hedge Fund Hotel 
  14. 14. Global Best Practices followed in SA  3rd Party Fund Administration (IDS) ◦ NAV Package   Multiple Prime brokerages 3rd party Custody ◦ Fund Manager doesn't receive the money at any point  Following these practices avoids Madoffs and other Ponzi Schemes (Abante Capital / Herman)
  15. 15. Hedge Fund Ecosystem Fund Manager  Prime Broker (1-2 PBs)  Custodian  Fund Administration  3rd Party Marketing / Public Relations  Legal and Compliance  Risk Management 
  16. 16. References Novare 2012 Report  AIMA SA HF Booklet  Interviews 

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