Hedge fund manager Nautilus, a subsidiary of the JSE, has received approval from the Financial Services Board (FSB) to offer a set of hedge fund products to the public. Nautilus is one of only a few managers to have received approval to date, in terms of the revised legislations published last year. Alexia Kobusch (pictured), MD of Nautilus, said:
"The hedge fund industry in South Africa has tremendous scope for growth, as it is still largely underdeveloped here with only R74 billion assets under management (as at end December 2015) compared to the more than R43.8 trillion* invested in hedge funds globally," says. (*Calculated at $1 = ZAR15.64)
Kobusch believes a major reason for investors' apparent hesitance to hedge fund exposure is misconceptions about the industry. Hedge funds tend to have uncorrelated returns to the rest of the market, she says, adding that the FSB has created a well-regulated framework for investors to access this kind of investment in a responsible manner.
Regulation 28 of the Pension Fund Act allows for retirement funds to invest 10% of their portfolios into the hedge fund category, with 2.5% allowed for a single portfolio and 5% for a fund of hedge fund portfolio. The returns on investment in a hedge fund are taxed similarly to that of unit trusts.
Nautilus has been operating as a managed account platform for the past eight years, administering a number of hedge fund portfolios in a very similar way to that of a hedge fund manager. It offers both retail hedge funds and qualified investor funds, and has 24 portfolios available to investors, covering equities, fixed income, and commodities, as well as a blend of these asset classes through multi-strategy portfolios.
"Retail hedge funds are available to the general public and have to comply with a more rigorous set of regulations. The minimum investment is R50,000 when using Nautilus. Qualified funds are offered to more sophisticated investors, where the investor is required to demonstrate a certain level of financial knowledge and skill. The minimum investment for these funds is R1 million, which is a regulatory requirement."