Opalesque Industry Update - According to Warren Chapman at South African prime broker Peregrine Securities, South African hedge funds returned on average 2.09% in April 2011 (asset weighted, before fees) and 4.70% YTD, L/S equity hedge funds 2.38% (2.82% YTD) and market neutral equity hedge funds 0.85% (4.27% YTD).|
Comparatively, the Dow Jones Credit Suisse Core Hedge Fund Index was up 1.44% (est.) in April and +2.62% YTD, while the L/S Equity index was up 1.53% and 3.47% YTD. And the Eurekahedge Emerging Markets Hedge Fund Index returned 1.77% (est.) in April and 2.81% YTD.
Peregrine Group runs a Fund Platform for South African hedge fund managers that includes14 funds with assets under administration of R3.7bn (US$0.55bn).
Performance in 2011 continues the trend displayed in 2010, commented Chapman, with the average market neutral fund returning solid if uninspiring returns at very low levels of volatility, with long-short funds naturally displaying better returns with slightly higher volatility on generally positive equity markets. Meanwhile, market indices show that resource stocks continued to underperform significantly, ending flat on the month while financials (2.9% and 4.2% YTD) and industrials (4.3% and 5.2% YTD) ended strongly. All the sectoral indices fell sharply mid-month but recovered quickly, with only the resource sector failing to sustain the recovery to month-end. The All share index ended April with 2.2% (3.2% YTD, 19% in 2010).
Equity markets globally remain in a bullish trend, although perhaps with diminishing enthusiasm. A number of factors loom large in considering the prospects for the continuation of the equity bull market; one being inflation, the other being the end of quantitative easing from the Fed. According to Peregrine, the immediate consequence of the rates decision was a dollar sell-off, with the rand price of the US currency dropping below R6.60 late last week. The consequences for other asset classes are unclear, but there is currently a common perception that developments in the US economy over the next few months will be critical.
South Africa’s media have been reporting over the last few weeks that the changes to Regulation 28 of the Pension Funds Act, effective from July 1st, could result in an eightfold surge in assets under management of hedge funds – as one of the changes will mean that institutional and retail investors will be able to invest up to 10% of their assets in hedge funds. The industry currently manages around R30bn. Meanwhile, South Africa is reportedly looking at "interventions" to improve regulation of hedge funds.