Some hedge funds are available directly from the managers who offer them or through their administrators. You will find details on how to invest on their website.
Investment minimums are often high – a lump sum of R50 000 or R2000 a month for retail investor hedge funds and R1 million lump sum with subsequent debit orders ranging from a R100 000 a month for qualified investor hedge funds.
Some investment platforms offer access to select hedge funds.
Advisers who use discretionary investment fund managers to construct investment portfolios for you may offer access to hedge funds in the portfolios they put together.
Can my unit trust fund invest in a hedge fund?
Unit trust funds are currently not allowed to invest in hedge funds. The list of permissible investments for collective investment schemes in securities is being reviewed and is expected to include limited exposure to regulated South African hedge funds in the future.
Can my retirement fund invest in a hedge fund?
Your retirement fund can invest in a hedge fund, but regulation 28 of the Pension Funds Act (the regulation that is intended to ensure that retirement funds invest prudently) limits retirement funds to investing 10 percent of their assets in hedge funds, with a maximum of 5% in a fund of hedge funds and 2.5 percent in any one hedge fund.
Most retirement funds, however, have well below the 10% limit in hedge funds.
Can I use a tax-free savings account to invest in a hedge fund?
Tax-free savings accounts specifically exclude investments in hedge funds, so you cannot use these accounts to invest in a hedge fund.
What is a fund of hedge funds?
A fund of hedge funds is a fund made up of underlying hedge funds. The manager’s job is to select and blend the best hedge funds.
Funds of hedge funds offer you diversification and lower your investment risk with the aim of delivering a more consistent return.
These funds are offered to you, as an individual investor, or to your retirement fund, because it takes specialist knowledge to understand what returns to expect from hedge funds, what risks the funds are exposed to, how liquid they are and how to select ones likely to deliver, and how to combine them with other funds with complementary investment strategies.
The fund of funds structure is particularly relevant with hedge funds because their strategies are so diverse and their returns are not based largely on market returns. This gives them unique risks.
There is, however, another layer of fees in these funds, because you will pay fees not only to the underlying funds, but also to the manager of the fund of funds.
South African funds of hedge funds have fewer underlying funds than overseas funds of hedge funds because the market is smaller. The higher the number of funds included in a fund of funds, the lower the impact of one of them delivering very poor returns.
