Key Takeaways
- • Novare launched South Africa's first retail fund of hedge funds product on February 3, 2016, democratizing access previously limited to institutional investors and making hedge funds available to financial advisers and individual investors.
- • The Novare fund of hedge funds delivered an annualized return of 10.0% in 2015, significantly outperforming the All-share Index (5.1%), All Bond Index (−3.9%), and cash (6.4%), demonstrating hedge fund performance in a challenging economic environment.
- • Hedge funds provide retail investors with long and short market exposure, lower correlation with traditional assets, and absolute return potential while functioning as a portfolio volatility reducer when combined with conventional asset classes.
- • South African hedge funds received formal regulatory classification as collective investment schemes effective April 1, 2015, establishing investor protection frameworks and systemic risk monitoring while aligning with existing pooled investment regulation.
Summary
Independent investment company Novare announced the launch of South Africa's first retail fund of hedge funds product in February 2016, marking a significant shift in market accessibility. Previously restricted to institutional investors, the new offering extends hedge fund access to financial advisers and individual retail investors through a regulated structure that meets recent South African regulatory requirements.
Eugene Visagie, head of hedge fund investments at Novare, outlined the strategic rationale for retail hedge fund exposure in a low-return environment. He emphasized that hedge funds provide bidirectional market exposure—enabling profit from both rising and falling markets—and function as risk-reduction tools through lower correlation with traditional financial assets. When incorporated into diversified portfolios, hedge funds can reduce overall volatility while delivering absolute returns independent of broad market movements. Visagie noted that prevailing economic conditions, characterized by pressure on traditional asset class returns both domestically and globally, create favorable operating conditions for hedge fund strategies.
Performance data underscores this positioning. The Novare fund of hedge funds product achieved a 10.0% annualized return for the 2015 calendar year, substantially exceeding returns from the All-share Index (5.1%), All Bond Index (−3.9%), and cash (6.4%). This performance differential reflects hedge funds' capacity to generate positive returns in volatile, low-yield environments where traditional equity and fixed-income strategies face headwinds.
The product launch occurred within a newly regulated framework. Effective April 1, 2015, South African hedge funds were formally designated as collective investment schemes (CIS). According to Visagie, this regulatory classification aims to protect investors, monitor systemic risk, maintain industry integrity, and facilitate financial market development. Because most South African hedge funds operate as pooled investments, regulators aligned hedge fund oversight with existing collective investment regulation, creating a consistent governance framework for the emerging retail hedge fund market.
Eugene Visagie, head of hedge fund investments at Novare, outlined the strategic rationale for retail hedge fund exposure in a low-return environment. He emphasized that hedge funds provide bidirectional market exposure—enabling profit from both rising and falling markets—and function as risk-reduction tools through lower correlation with traditional financial assets. When incorporated into diversified portfolios, hedge funds can reduce overall volatility while delivering absolute returns independent of broad market movements. Visagie noted that prevailing economic conditions, characterized by pressure on traditional asset class returns both domestically and globally, create favorable operating conditions for hedge fund strategies.
Performance data underscores this positioning. The Novare fund of hedge funds product achieved a 10.0% annualized return for the 2015 calendar year, substantially exceeding returns from the All-share Index (5.1%), All Bond Index (−3.9%), and cash (6.4%). This performance differential reflects hedge funds' capacity to generate positive returns in volatile, low-yield environments where traditional equity and fixed-income strategies face headwinds.
The product launch occurred within a newly regulated framework. Effective April 1, 2015, South African hedge funds were formally designated as collective investment schemes (CIS). According to Visagie, this regulatory classification aims to protect investors, monitor systemic risk, maintain industry integrity, and facilitate financial market development. Because most South African hedge funds operate as pooled investments, regulators aligned hedge fund oversight with existing collective investment regulation, creating a consistent governance framework for the emerging retail hedge fund market.
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