presentation - financial services board (introducing hedge funds)
DESCRIPTION
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 StellenboschTRANSCRIPT
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FSB Presentation
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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.
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Historical Context1949 Alfred Winslow JonesFirst Fund of HFs Created 19691993 some hedged trading in Prop Desks1995 First SA hedge fund appears1998 LTCM Crash (Systemic Risk)2000 Tiger Fund closes2003 AIMA SA launched (Now under
ASISA)2012 Industry AUM record at R33 Billion
in Single Strategy Funds
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Reasons I want to invest in HFs Investors seeking Alpha
(leverage helps)Institutions looking for
diversification of riskSome HFs don't have high
returns, focus on diversification element
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Fee Structures2% Administration Fee /
Management Fee20% Performance fee
Hurdle RatesHigh Water MarksLock up periodsHfs are Performance Seekers not
Asset Gatherers
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4 Main Types of Hedge Funds
1. Long / Short Strategies2. Relative Value & Arbitrage3. Event Driven4. Distressed securities
5. Other Alternatives = wine, coin, collectables
Main objective = uncorrelated returns (to reduce investment risk)
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AUM Per Strategy
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RegulationsCat IIA - ManagerRegulation 28 – Pension funds
◦15% Alt◦10% HFs or PE◦2.5% per single hedge fund
Industry is Self Regulated
G20 RequirementsSystemic Risk ExplainedProposed HF frameworkNew move to CISCA
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Graph of Industry AUM
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Retail Vs PrivateRetail = 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 playersLead to Indifferent PerformanceLead to extra fees – absorbed by
investors
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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
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Word from the IndustryHedge funds are performance
seekersNot asset GatherersSmall 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
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Sources of CapitalHNWIFamily OfficesFund of FundsFoundations and EndowmentsPension Funds / Life FundsCapital Introductions via PBSeed Capital / Hedge Fund Hotel
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Global Best Practices followed in SA3rd Party Fund Administration (IDS)
◦ NAV PackageMultiple Prime brokerages3rd party Custody
◦ Fund Manager doesn't receive the money at any point
Following these practices avoids Madoffs and other Ponzi Schemes (Abante Capital / Herman)
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Hedge Fund EcosystemFund ManagerPrime Broker (1-2 PBs)CustodianFund Administration 3rd Party Marketing / Public
RelationsLegal and ComplianceRisk Management
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ReferencesNovare 2012 ReportAIMA SA HF BookletInterviews