Assets in the HedgeNews Africa universe contracted slightly in 2011, amounting to a total of US$8.7 billion, with South African hedge fund assets staying level on the year while absolute-return Africa funds contracted on the back of difficult markets.
The survey included data from 195 single-manager and 60 fund of funds.
The South African hedge fund industry was stable during the year with assets under management in single-manager funds of R32.79 billion (US$4.2 billion), down 2.34% from R33.57 billion the year before. Taking into account a median return of 8.7% from the HedgeNews Africa South African Composite, assets have declined slightly.
The South African number includes all South African funds in the HedgeNews Africa database, as well as those funds that do not report returns to us but which have revealed their AUMs for the purposes of this research. It must be noted that HedgeNews Africa takes a conservative approach to calculating total assets under management, preferring to err on the side of caution.
Industry assets have now remained at similar levels for the fourth year in a row, with none of the major outflows that afflicted global markets post-2008 but also none of the resultant bounce-back. Changes in South African pension fund regulation (Regulation 28 of the Pension Fund Act) announced early last year are expected to bring a boost in assets, but patience is required, with the new rules bringing an initial contraction for hedge funds as pension funds come in line with the new rules.
A total of 136 single-strategy South African funds participated in this survey, including the dollar structures of South African funds. Total South African assets exclude absolute return strategies, as well as Africa (ex-SA) and global mandates managed by South African-based firms.
In the South African hedge fund space, equity-based strategies remain the dominant strategy type. Equity long/short funds account for assets of R13.13 billion—or 40%—in line with the previous year’s total of R13.09 billion. Equity market neutral and quantitative strategies contracted by 18.2% from R7.6 billion in 2010 to R6.2 billion, as market conditions remained difficult for these strategies amid shifting global macro conditions.
Fixed income funds grew marginally more than their median 10% gain for 12-month period, comprising R6.25 billion, up 10.05% from R5.6 billion in 2010 with continued growth expected as funds develop longer track records.
Multi-strategy funds declined by 10.4%, comprising a total of R5.3 billion in 2011 down from R5.9 billion the year before.
South African credit and event-driven strategies grew during the year to comprise assets of R1.66 billion, with managed futures funds coming in at R213 million.
South African-based managers also manage around US$1.1 billion in global strategies, including emerging market and commodity-based funds, up from $1 billion the year before.
Offshore assets in South African funds now account for almost 6% of the total, double last year’s share. Together they now account for US$242.5 million, or R1.96 billion, a 55% increase, with 11 funds offering dollar or pound classes.
Domestic fund of funds remain the biggest investors in the South African industry, accounting for assets under management of R21.1 billion.
While they are still clearly the dominant route to market for domestic investors—bringing broader industry benefits ranging from seeding and incubation to education—total fund of fund AUM has dropped to 64% of industry assets from a 70% share in 2010 (or R23.4 billion).
South African fund of funds also achieved a median return of 7.09% in 2011, indicating that the AUM decline is a result of capital withdrawals, most believed to be the result of pension funds recalibrating their portfolios to come in line with the new Regulation 28, which puts private equity, onshore and offshore hedge in the same category.
African fund of funds remain specialist niche providers, accounting for a combined $54.6 million, with poor returns from African markets last year dampening investor interest.
Across the HedgeNews Africa universe, 23 funds launched in 2011 and 16 closed (compared with 31 launches and 28 closures the year before). Amongst new launches, a handful were from funds of funds creating new strategy-specific mandates.
South African equity strategies were the most popular launches in 2011—with five long/short and four market-neutral funds coming to market. The market for new launches remains muted given a lack of new money flowing into the industry as well as increased licensing and capital-adequacy requirements for new managers.
More than half of new mandates were launched by known hedge fund managers joining established houses, or existing hedge fund companies launching additional products. Two were from well-known managers in the long-only space who joined established hedge fund companies. The fixed income category had two launches during the period with no closures, while multi-strategy funds were level (with three launches and three closures). One commodities fund came to market, an area where more growth is anticipated going forward.
According to our records, 35% of South African single-manager funds had less than R50 million under management. However, most are from firms with more than one fund offering, with only around 10% comprising the main business of the management firm.
In South Africa, there are 11 management companies with hedge fund assets under management of more than R1 billion, down from 13 last year—with an additional two companies dipping just slipping below the R1 billion mark. Seven individual funds comprise assets of more than R1 billion, in either multi-strategy or equity strategies.
The Pan Africa space was quiet for both launches and closures amid difficult markets, with just two new long-only/absolute return funds going live compared with three closures (one hedge fund, two long-only/absolute return) as well as two Africa-focused fund of funds being discontinued.
Assets in African single-manager funds were at $3.56 billion as at the end of 2010, the bulk in long-only and absolute-return strategies, with a total of 58 funds reporting for the survey. The number excludes Blakeney Asset Management, believed to have $1.5 billion in Africa, but includes Investec Asset Management’s Africa/MENA franchise, which accounts for around $900 million.
Africa and MENA hedge fund assets account for $421.8 million, or 11.9% of the total Africa assets and just 4.8% of total HedgeNews Africa assets. Copyright. HedgeNews Africa – April 2012.