Transcript Slide 1

Hedge Funds in South Africa:
Myths, half truths and truths
AIMA Media Briefing
AIMA – a new manifesto
• Regulate the industry
• De-bunk the myths of hedge funds
• Grow assets under management
2
Introduction to AIMA
•A global association in 47 countries (1200
corporate members).
•Established in 2003 after hedge funds had
been in SA for five years
•Achieved first major milestone in 2007 with
Hedge Fund manager regulation.
For discussion
• Myth 1 - the current landscape
– UK/Europe/the world (more sizzle than
steak)
– SA (all steak and no sizzle)
• Myth 2 - returns v risk
– Less risky than long-only equity investing
– Better returns
– Not only about equities
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The retirement savings industry
comparison
97% of Global Pension Market
RSA industry
Equities
:
42%
Equities
: 75%*
Fixed interest
:
40%
Fixed interest
: 8%*
18%
Cash
: 17%
(Including cash)
Hedge Funds,
real estates,
commodities
and private equity
:
*Hedge Fund Retirement Asset Estimate:
1.3%
with assets in the region of
18.2bn.
Source: Alexander Forbes Survey, Merryl Lynch and Watson Wyatt
2 Year Performance Analysis
ALSI
Cash
Fund 1
Fund 2
Fund 3
Fund 4
Fund 5
Fund 6
Fund 7
Fund 8
Fund 9
Fund 10
Fund 11
Fund 12
Fund 13
Fund 14
Fund 15
2 Year
Return
-8.5%
22.2%
56.4%
52.7%
45.3%
43.5%
38.1%
36.9%
35.1%
33.6%
33.6%
32.3%
32.3%
29.3%
25.9%
25.8%
24.8%
2008
Return
-23.2%
11.7%
11.7%
16.0%
14.2%
8.3%
20.2%
5.0%
17.5%
-5.1%
19.4%
20.5%
12.4%
15.6%
-2.2%
11.8%
1.3%
Period: 2 Years Ended 31 Dec 2008
2007
Return
19.2%
9.4%
40.0%
31.6%
27.3%
32.4%
14.9%
33.1%
15.0%
40.8%
11.9%
9.8%
17.7%
11.8%
28.7%
12.5%
23.2%
Annualised
Volatility
17.5%
0.6%
9.5%
4.1%
6.7%
6.5%
5.1%
10.2%
3.6%
12.1%
6.5%
3.2%
5.0%
4.7%
3.3%
3.5%
6.1%
The benefits of hedging
Allan Gray Equity vs. Allan Gray Optimal
*
*
1 Feb 2008 – 31 Jan 2009
Allan Gray Equity Fund
Allan Gray Optimal Fund
20.0%
+15.4%
15.0%
10.0%
5.0%
0.0%
-5.0%
-4.7%
-10.0%
* Includes dividends re-investment
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
-15.0%
Data Source: MoneyMate
Alpha Asset Management Research, 2009
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The benefits of hedging continued but…
*
Allan Gray Equity vs. Allan
Gray Optimal *
1 Feb 2006– 31 Jan 2009
Allan Gray Equity Fund
Allan Gray Optimal Fund
70.0%
60.0%
50.0%
40.0%
+35.3%
30.0%
+29.6%
20.0%
10.0%
0.0%
* Includes dividends re-investment
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
-10.0%
Data Source: MoneyMate
Alpha Asset Management Research, 2009
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Hedge Funds in South Africa:
WHO are the players?
+/- 100 licenses granted by the FSB under FAIS Act, 2002
R29bn
Allan Gray/Orbis
Investec
Coronation
RMB
Old Mutual
Sanlam
R26bn
Cadiz
Peregrine
Oryx
Visio
…and 90 other managers
Total Industry = R55bn
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International trends say
AUM of the local hedge fund industry
should be 4x to 8x current size or
between R120 – R240 billion
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RSA – world leader in risk
management
Source: Alpha Asset Management Research, 2009
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Risk mitigation driven by the Fund of
Hedge Fund players
•Alpha
•Legae
•Blue Ink
•Orange
•Brait
•Sygnia
•Clade
•Symmetry
•Edge
•Trialpha
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Fund of Funds Managing the
Risks
Position Size Concentration
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
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2
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6
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FoHF
FoHF
FoHF
FoHF
1
2
3
4
Liquidity
Exposures
Volatility
RSA vs. Global Hedge Fund Industry
Transparency
Liquidity Line of Sight of
Underlying Position
Independence
RSA
GLOBAL
Excellent Self regulated
industry leader
Are proposing going this
route
Excellent 70% of
managers reporting daily
Are proposing going this
route
FoHF insist on
independence
Moving there but not yet
industry standard
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Making risk mitigation a
requirement for regulation
AIMA meeting with FSB on 24 March in
collaboration with ASISA to propose
institutionalised risk mitigation
15
WHAT is a Hedge Fund actually?
•
A fund that can go short (either
through selling an index or borrowing
shares and selling those in the
market).
•
A fund that can invest more than
100% of it’s capital.
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Myths about shorting and leverage
(gearing)
Portfolio
Assets
Counters
Average Position Size
Long Book
R60m
30 Counters
2.0%
Short Book
R60m
30 Counters
2.0%
Cash Holding
Gross Exposure
Net Exposure
Invested
Capital
R100m
Long Book
R60m
Long Book
R60m
Less Long
Book
-R60m
Short Book
-R60m
Short Book
-R60m
Plus Short
Sales
+R60m
Total
R120m
Total
R0m
Total in
cash
R100m
Gross
Exposure
120%
Net
Exposure
0%
Source: Alpha Asset Management Research, 2009
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Hedge Funds in generally positive
markets
Long-only
Manager
Hedge Fund
manager
SHP
5,000
R43.36
R38.70
SHP
Liabilities
R1.00M
(26K SHP
shares)
R1.00M
(26K SHP
shares)
Assets
Assets
Liabilities
-R1.00M
(22K JDG
shares)
3,000
R1.00M
(Cash)
Liabilities
Assets
2,000
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January ‘08
Assets
4,000
Liabilities
JDG
R45.15
5,000
R1.10M
(26K SHP
shares)
Profit:R0.1M (10%)
R1.10M
-R0.75M
(26K SHP s (22K JDG
hares)
shares)
R1.05M
(Cash)
R0.4M (40%)
4,000
3,000
JDG
2,000
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4/
20
08
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/2
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May ‘08
R33.94
Source: Fairtree Capital, 2009
September ‘08
Assets
Assets
R0.88M
(17K IPL
shares)
P&L:-R0.12M (-12%)
Liabilities
R1.00M
(17K IPL
shares)
Liabilities
Assets
R1.00M
(17K IPL
shares)
R1.00M
(Cash)
Assets
R0.88M
(17K IPL
shares)
R1.05M
(Cash)
R0.6M (60%)
6/
6/
6/ 20
13 08
/
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/
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/2
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/5 0 8
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/1 00
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/1 00
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/2 00
6/ 8
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08
Long-only
Manager
Hedge Fund
manager
-R1.00M
(292K SPG
shares)
Liabilities
-R0.33M
(292K SPG
shares)
6/
6/
6/ 20
13 08
/
6/ 20
20 08
6/ /20
27 08
/2
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11 08
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/2
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/2
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19 08
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/1 00
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10 /2
/1 00
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10 /2
/2 00
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4
10 /2
/3 00
1/ 8
11 20
08
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/1 00
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/2 00
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/2 00
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/5 0 8
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/1 00
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/2 00
6/ 8
20
08
December ‘08
Hedge funds in generally negative
markets
IPL
7,000
600
R60.50
R53.14
6,000
IPL
Liabilities
5,000
4,000
3,000
SPG
R3.42
400
R1.14
200
SPG
0
Source: Fairtree Capital, 2009
1
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Regulated Hedge Fund says it’s good
for grannies, too
As per Fund Fact Sheet
Suitable for those investors who:
• Seek absolute returns regardless of stock market trends. (Positive returns always).
• Are risk averse and require a high degree of capital stability.
• Are retired or nearing retirement.
• See the diversification benefits of uncorrelated returns relative to shares or bonds.
• Wish to diversify a portfolio of shares or bonds.
• Wish to add a product with an alternative investment strategy to their overall portfolio.
Actual Current Fund Structure (A Hedge Fund)
Equities (long positions)
Hedging (shorting)
Gross Exposure (>100% of capital invested)
Net Exposure
76%
-70%
146%
6%
Source: Allan Gray Optimal Fund Fact Sheet
20
Long Term Performance History
Broad-based FoHF vs. Regulated Hedge Fund (CISCA)
*
1 Mar 2003 – 31 Jan 2009
Alpha
Fund Diversified
of Hedge Funds
Allan
CISCA Gray
Fund Optimal
120%
+100%
100%
80%
+72%
60%
40%
20%
0%
*Dividends re-invested at ex-dividend date
Nov 08
Aug 08
May 08
Feb 08
Nov 07
Aug 07
May 07
Feb 07
Nov 06
Aug 06
May 06
Feb 06
Nov 05
Aug 05
May 05
Feb 05
Nov 04
Aug 04
May 04
Feb 04
Nov 03
Aug 03
May 03
Feb 03
-20%
Data Source: MoneyMate, Independent Data Services
Alpha Asset Management Research, 2009
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Performance Statistics
Broad-based FoHF vs. Regulated “Hedge” fund
1 Mar 2003 – 31 Jan 2009
Cumulative Return
Annualised Return
Average Monthly Return
FoHF
99.8%
12.4%
1.0%
CISCA “Hedge” Fund
72.1%
9.6%
0.8%
Annualised Std Deviation
3.0%
2.5%
Sharp Ratio (Rfr 10%)
Information Ratio
0.80
4.10
-0.15
3.81
90.1%
9.9%
88.7%
11.3%
-1.4%
-1.4%
-0.8%
-0.8%
13.0%
10.5%
15.5%
14.9%
14.2%
4.6%
10.9%
4.3%
9.0%
8.4%
9.5%
12.3%
% Positive Months
% Negative Months
Largest Monthly Decline
Worst Peak-to-trough Decline
2003 Mar – Dec
2004
2005
2006
2007
2008
Source: Alpha Asset Management Research, 2009
22
Same principle applied globally and
FSB-registered for sale in S.A.
Fund Objective
The fund seeks capital appreciation in US
dollars on a low risk global portfolio.
Fund Structure (A Hedge Fund)
Equities
85%
Hedging (shorting)
-69%
Gross Exposure (> 100% of capital invested) 154%
Net Exposure
16%
Orbis Optimal fund – one fund – larger than the entire industry in SA,
($2.8 billion / R30 illion)
Source: Orbis Optimal Fund Fact Sheet
23
3 Year Performance History
Orbis Global Equity vs. Orbis Optimal
*
1 Mar 2006 – 28 Feb 2009 (Dollars)
Orbis Global Equity Fund
Orbis Optimal
40.0%
30.0%
20.0%
10.0%
+6.5%
0.0%
-10.0%
-20.0%
-30.0%
-32.3%
* Includes dividends re-investment
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
-40.0%
Data Source: Orbis Mutual Funds
Alpha Asset Management Research, 2009
24
5 Year Performance History
Equity L/S vs. ALSI & Equity Unit Trusts
280%
Long/Short Equities
240%
FTSE/ JSE All Share Index (TR)
200%
Domestic Equity General - SA Unit Trust Average
160%
120%
80%
40%
0%
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
-40%
Data Source: AfricaHedge, I-Net Bridge, Micropal
Alpha Asset Management Research, 2009
25
South African HF Composite
5 Year Performance History
120%
South African HF Composite
100%
Cash
80%
60%
40%
20%
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
0%
Data Source: AfricaHedge, I-Net Bridge
Alpha Asset Management Research, 2009
26
Regulated environments
Unit Trusts - Collective Investment Schemes Control Act, 2002
Investment Insurance Policies - Long Term Insurance Act,1998
Variable Rate Debenture - Companies Act, 1973
Trusts - Trust Property Control Act, 1988
27
The question is not WHY but rather
WHY NOT have a choice hedge in the
mainstream?
Good regulation is good for
business
AIMA SA determined to lead
from the front
29