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South African Retirement Funds Still Considering H

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PRETORIA, South Africa (–Education, additional regulation and transparency may be some of what’s holding back the South African hedge fund market, especially when it comes to wooing pension funds, according to a recent survey.

Conducted by the Department of Financial Management at the University of Pretoria and commissioned by SEI Investments South Africa, the research shows that 40% of South African retirement funds already are investing in offshore hedge funds, while 60% said that they haven’t considered doing so.

The university polled 41 randomly selected retirement fund trustees that represent 87 retirement funds with assets totaling R158 billion (US$21.6 billion). According to researchers, the universe they interviewed represents about 28% of the South African retirement fund market.

What they found was that of those pension funds already invested in hedge funds, 62% said they would consider using them in the future but were prevented from further investment due to their funds’ current investment strategy, lack of knowledge or limitations in the existing pension fund regulations and a lack of suitable funds from which to choose.

Much of that may have to do with the current legislative demands. Legislation in the works is expected to register funds of funds and to allow them to be offered to retail investors, while South African hedge funds would continue to be sold to private sophisticated investors only.

Officials at Bank of Bermuda and Cape Town, South Africa-based Investment Data Services hope that legislation would be forthcoming by year-end and that likely will be similar to laws in other countries that have started to offer hedge funds as of late, such as Singapore and Hong Kong. The Hamilton, Bermuda-based administrator inked a deal with IDS last month Previous HedgeWorld Story.

A majority of the fund trustees polled (68%) said that their knowledge of hedge funds was poor or average, and 59% said they relied mostly on the financial press to get information on hedge funds rather than investment consultants and direct marketing sources.

And some of the education pension fund officials already have received could vary in quality. More than half of the respondents expected returns on hedge funds to be lower than other investment strategies, while 20% expected returns to be higher. Another 30% didn’t have an opinion. On another question, 50% held the view that hedge fund vehicles were less risky than other traditional investment strategies, while 30% said that the risk in hedge funds was higher.

Besides the confusion over what is acceptable from a regulatory standpoint and whether hedge funds are an appropriate investment, those that have invested have an exposure of less than 10% to hedge funds. According to researchers, one fund had an onshore hedge fund exposure of above 20% and two had offshore exposure to hedge funds of more than 20%.

One thing almost all could agree on was that a level of transparency was lacking in the hedge fund industry. A total of 85% said that the availability of hedge fund information and transparency of fund managers’ investment process was poor.

One of the study’s conclusions was that greater organizational structure needs to be in place and more discipline will have to be maintained for the hedge fund industry to grow. “The industry may already be moving away from using high-profile individual hedge fund managers to choosing more professional structured organizations,” the authors wrote in the executive summary of the report.

The project team for the study included five lecturers from the University of Pretoria: Hugo Lambrechts, who coordinated the project; Ebo Oost; John Hall and Elbie Antonites from the Department of Financial Management; and Sollie Millard from the Department of Statistics.

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