CAPE TOWN – Multi-management firm Novare has become the first local manager to launch hedge fund products into the local market. On 1 February it made two fund of hedge funds available to investors – the Mayibentsha Growth Fund of Hedge Funds and the Mayibentsha Defensive Fund of Hedge Funds.
The launch of the two products follows changes to legislation that classified hedge funds as collective investment schemes from April last year. A process has since been under way to register and approve offerings for retail investors, and these are the first to become available.
It is anticipated that the fund of hedge funds structure will be the most popular, and probably most appropriate, way for retail investors to invest in these products. This is because it leaves the selection and blending of managers to experts in the hedge fund space who have the necessary insight and know-how.
Novare’s two products are specifically multi-asset, multi-strategy offerings, meaning that they provide exposure to different types of hedge funds through a single entry point.
“This produces more stable returns and less variability because you get exposure to different strategies,” explains Eugene Visagie, Head of Hedge Fund Investments at Novare. “The manager’s job is to identify the best managers out there who can manage capital to a specific mandate.”
The Mayibentsha Growth Fund of Hedge Funds targets a return of cash + 6%. Its underlying funds are predominantly equity long-short mandates, with a smaller allocation to multi-strategy funds.
The Mayibentsha Defensive Fund of Hedge Funds is more conservative, with a return objective of cash + 3%. Its underlying funds predominantly employ equity market neutral and fixed interest arbitrage strategies.
The firms that are managing the underlying funds and segregated portfolios within these funds include the likes of Matrix Fund Managers, Tower Capital and Mazi Capital.
What should investors expect from these offerings?
For investors, the important thing about these funds is the aim to provide fairly consistent performance.
“These mandates are designed to deliver absolute returns,” Visagie explains. “They aim for capital protection and lower variability so that you get more clarity on what the return stream should look like.”
This is the primary objective of hedge funds – to reduce the risk in a portfolio and produce returns that are uncorrelated to other asset classes. The JSE might gain 10% or lose 5%, but the intention with a hedge fund should be to meet the return objective in both environments.
“A misconception is that hedge funds are designed to deliver 30% or 40% returns,” Visagie says. “But hedge means to protect. These managers aim to protect capital, especially against big draw downs.”
He suggests that a well-balanced portfolio could include a weighting of 10% to 20% in hedge funds to provide this stability. And particularly in the current environment where volatility is high, they offer an attractive proposition.