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Bailey McCann, Opalesque New York:

South Africa's hedge fund industry is changing. New regulations have increased operational costs and placed limits on what hedge fund managers can do. However, delegates at the recent Opalesque South Africa Roundtable note that these changes are also driving innovation. Managers are creating new strategies and growing the local credit market.

"The CIS [collective investment schemes] regulation has initiated a whole new category of long-only equity funds," explains Kobus Esterhuysen, Director at Peregrine Securities. "Previously regulation required that the traditional long-only collective investment schemes have a diversified portfolio. We have recently seen a number of startups using the CIS hedge fund regulation, not necessarily for gearing or shorting or managing a long/short fund, but purely using the opportunity to set up a more concentrated focused fund in the listed equity space." The new funds have used the CIS regulation's more relaxed investment limits to create a new take on long-only strategies.

In addition, managers have started to push into the credit markets. South Africa's credit market has less liquidity and lower volume than other global credit markets, but managers there are exploring ways to create products with a wider variety of credit strategies.

"A good number of funds are coming to market - not in the regulated space - but are credit type funds," says Tony Christien, Divisional Director at......................

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