the hedge fund opportunity in sa
TRANSCRIPT
2
1. Hedge Funds - An Introduction and Overview
2. Differentiating Hedge Funds from Long-Only Funds
i) An opportunity ignored
ii) Introduction of gearing
iii) What are the risks?
3. Contention: Fees and Benchmarks
4. Hedge Fund Performance
5. Obsidian Capital Hedge Fund Offering
6. Conclusion
Presentation outline
3
Hedge Funds - An introduction and overview
Offshore
Onshore
An opportunity ignored
Security Research
Undervalued stocks
Overvalued stocks
Long-Only & Hedge Fund
Hedge Funds
An investment subset ignored by long-only investing
Differentiating Hedge Funds from Long-Only Funds
Introduction of gearing
(C)BUY R40 with proceeds
from (B)
(A) BUY R100
(B)SELL R40 overvalued
stock
Follow (A) → (B) → (C)
Security Research
Undervalued Stock
Overvalued Stock
= [A+B+C]/NAVLeverage/Gearing = [100+40+40]/100
= 1.8x
What are the risks?
(C)BUY R40 undervalued
stock
(A)BUY R100 undervalued
stock
(B)SELL R40 overvalued
stock
Long bets decline in value
Short bets increase in value
Excessive leverage can amplify the loss
Security Research
7
• Hedge fund benchmarks are diverse and should be judged based on the objectives
of each fund
• If hedge fund fees are excessive, it should wash out in the comparable net-of-fees
return data
– Refer to www.novare.com for their annual hedge fund report detailing fee and
benchmark dynamics to dispel some of the popular myths
The crux, have Hedge Funds performed?
Contention: Fees and Benchmarks
8
Protecting capital AND outperforming
Hedge Fund Performance
Source: Hedge News Africa, INet
9
Fixed Income Hedge Funds produce consistent Alpha
Source: Hedge News Africa, INet
10
Fixed Income Hedge Funds outperform relative to Long Only Funds
Source: Hedge News Africa, INet
11
Hedge Funds have outperformed Long-Only Balanced Funds
Source: Hedge News Africa, INet
12
Hedge Funds first, Balanced Funds second on a return basis
Source: Hedge News Africa, INet
13
Performance in good times….
Source: Hedge News Africa, INet
Volatility (%) Returns p.a. (%)
0.1 6.7
1.8 11.0
2.4 11.2
4.3 12.0
5.9 9.4
6.0 7.6
10.0 9.7
10.6 9.6
12.2 11.4
13.0 17.0
16.7 16.5
12.7
Reg 28 Balanced Unit Trusts
*Commenced 1 Nov 2007
Investment product volatility and returns: Dec 2006 - Mar 2016
Rand Gold
All Bond Index
Domestic Equity Unit Trusts
Rand MSCI World Equity
All Share Index
Obsidian Multi-Strategy Fund*
SA Listed Property
SA Cash
Fixed Income Hedge
50:50 FI / Equity Long Short Hedge
Equity Long Short Hedge
14
….And in the bad times
Source: Hedge News Africa, INet
Returns p.a. (%)
-38.7
-37.0
-36.8
-30.3
-17.8
-10.7
-3.0
11.0
12.0
14.9
15.0
11.0
Cash
Returns during the Global Financial Crisis: Oct 2007 - Feb 2009
*Commenced 1 Nov 2007
Rand MSCI World Equity
Reg 28 Balanced Unit Trusts
Equity Long Short Hedge
Multi-Strategy Hedge
Fixed Income Unit Trusts
Obsidian Multi-Strategy Fund*
All Share Index
SWIX
Domestic Equity Unit Trusts
Hedge Fund Composite Index
Fixed Income Hedge
15
Obsidian Capital Hedge Fund Offering
Obsidian Multi-Strategy Fund
– Demonstrable 9-year track record– Diversifies across all major asset classes– Responsible levels of gearing employed, at or below 2X– Significant co-investment by Investment Management Team– Management fee 1.5%, 20% on returns above CPI+3%, High Watermark Principle applies
Obsidian Long-Short Equity Fund
– Demonstrable 8-year track record– Equity centric focus– Significant co-investment by Investment Management Team– Management fee 1.5%, 20% on returns above CPI+5%, High Watermark Principle applies
NB: Both funds destined for RIHF status, granting access to retail investors
16
50
100
150
200
250
300
Obsidian Multi-Strategy Fund 50:50 Equity:FI Hedge MSCI World in Rand Reg 28 Balanced
Equity Unit Trusts Domestic Bond Funds SA Cash
Delivered! - Obsidian Multi-Strategy Hedge Fund
Source: Hedge News Africa, INet
17
Delivered! - Obsidian Long-Short Equity Fund
Source: Hedge News Africa, INet
50
100
150
200
250
300
350
Obsidian Long Short Equity Fund Long Short Hedge Equity Long Only Equity
18
– YES, hedge funds have delivered
– Historical return and volatility data show that hedge funds are worthy of
inclusion in retail investor portfolios
– Don’t miss out because of the “plane crash phobia”
– We still all fly, don’t we?
Conclusion