Key Takeaways
- • Novare Investments portfolio manager Kwazi Mbhele argues that pension funds should treat hedge funds as a core allocation, citing consistent performance through volatility, downside risk management, and return smoothing.
- • Regulation 28 in South Africa allows retirement funds to allocate up to 10% to hedge funds, yet total local hedge fund industry assets are only R106.8 billion per Novare's 2023 Annual Hedge Fund Survey, versus R3.87 trillion across the CIS industry.
- • A Barclays survey of investors managing over $8 trillion expects pension and insurance fund hedge fund allocations to rise from 9% to 19% in 2025.
- • HedgeNews Africa's Fund of Funds Composite Index returned 15.9% after fees in 2024, ahead of the FTSE/JSE All Bond Index (13.6%) and FTSE/JSE All Share Index (13.4%).
- • Novare's Mayibentsha fund-of-funds range targets CPI +2.5%, CPI +3.5% and CPI +4.5% across market-neutral, moderate and focused risk profiles.
Summary
Writing in BusinessTech, Kwazi Mbhele, Portfolio Manager at Novare Investments, contends that hedge funds remain underused by pension fund trustees despite their track record through recent market turbulence, including inflation, interest rate hikes, the war in Ukraine, tensions around Taiwan and the 2024 US election cycle. He argues that their ability to manage downside risk and smooth returns suits pension funds, which must meet liabilities, preserve savings and avoid drawdowns that could force asset sales at a loss.
The article addresses the reputational concerns around hedge funds. Mbhele states that South African hedge funds are regulated under the same collective investment scheme framework as unit trusts, offering daily pricing and strict disclosure, and that many strategies are designed for risk-averse institutional investors. Performance fees are charged only after a fund beats its benchmark, and all fees are disclosed upfront. He recommends that trustees evaluate risk-adjusted returns rather than costs in isolation.
According to Mbhele, Regulation 28 permits up to 10% allocation, but actual allocations remain well below this limit. Globally, the Barclays survey indicates a shift, with endowments and sovereign wealth funds also increasing exposure. Citing HedgeNews Africa data, he notes that the local industry delivered its best performance on record in 2024, with the Fund of Funds Composite Index outperforming both bond and equity benchmarks.
Novare states that its Mayibentsha fund-of-funds range has outperformed equities and bonds through most major market shocks since 2008, including the global financial crisis, Nenegate and Covid-19. The three funds target CPI +2.5% (Market Neutral, low-to-medium risk), CPI +3.5% (Moderate) and CPI +4.5% (Focused, higher risk). Mbhele emphasizes that the article presents the firm's own products and that the performance figures are company-reported.
Mbhele concludes that hedge funds are not a cure-all but can form a core component of a retirement strategy if trustees define whether the allocation is meant to deliver smoother returns, downside protection or long-term outperformance, and then work with asset consultants or multi-managers to implement it.
The article addresses the reputational concerns around hedge funds. Mbhele states that South African hedge funds are regulated under the same collective investment scheme framework as unit trusts, offering daily pricing and strict disclosure, and that many strategies are designed for risk-averse institutional investors. Performance fees are charged only after a fund beats its benchmark, and all fees are disclosed upfront. He recommends that trustees evaluate risk-adjusted returns rather than costs in isolation.
According to Mbhele, Regulation 28 permits up to 10% allocation, but actual allocations remain well below this limit. Globally, the Barclays survey indicates a shift, with endowments and sovereign wealth funds also increasing exposure. Citing HedgeNews Africa data, he notes that the local industry delivered its best performance on record in 2024, with the Fund of Funds Composite Index outperforming both bond and equity benchmarks.
Novare states that its Mayibentsha fund-of-funds range has outperformed equities and bonds through most major market shocks since 2008, including the global financial crisis, Nenegate and Covid-19. The three funds target CPI +2.5% (Market Neutral, low-to-medium risk), CPI +3.5% (Moderate) and CPI +4.5% (Focused, higher risk). Mbhele emphasizes that the article presents the firm's own products and that the performance figures are company-reported.
Mbhele concludes that hedge funds are not a cure-all but can form a core component of a retirement strategy if trustees define whether the allocation is meant to deliver smoother returns, downside protection or long-term outperformance, and then work with asset consultants or multi-managers to implement it.
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