The South African hedge fund industry has enjoyed consistent steady growth of around R10bn ($0.84bn) a year over the past three years, according to the Association for Savings and Investment South Africa (ASISA).

The 2014 statistics for the local hedge fund industry, showed that SA hedge fund industry grew its assets under management by R10.5bn ($0.89bn) in the 12 months to 31 December 2014, ending the year with assets under management of R57bn ($4.7bn).

At the end of 2012 AUM amounted to R36bn ($3.04bn), whereas at the end of 2013 assets stood at R46.5bn (3.93bn).

These assets are invested in 113 hedge funds, which are managed by 55 hedge fund managers (fund of hedge fund managers excluded).

Robert Foster, convenor of the ASISA Hedge Funds Standing Committee, said the ten largest hedge fund asset managers are managing 69% of the hedge fund industry’s total assets under management.

“This means that the bulk of hedge fund assets are invested in sizable portfolios managed by well- established hedge fund asset managers with consistent track records of success,” he said.

Hedge funds apply a number of different strategies to mitigate the impact of market volatility.

According to ASISA, the most common hedge fund strategy in South Africa is “equity long/short”, with some 64% of assets invested in this strategy at the end of December 2014.

Foster said hedge funds aim to reduce market volatility for investors by applying specialist strategies and should be considered as one of the building blocks of a well-diversified investment portfolio.

According to Foster, South Africa will become the first country in the world to offer comprehensive regulated hedge fund products as soon as the Minister of Finance approves draft regulation under the Collective Investment Schemes Control Act (CISCA).

“Once hedge funds fall under CISCA, they will be deemed regulated collective investment schemes, just like unit trust portfolios,” he said.

He said that in terms of the draft regulation, there will be two categories of hedge funds, namely Qualified Investor Hedge Funds and Retail Investor Hedge Funds.

Retail Investor Hedge Funds will be designed for individual investors, operating in a similar manner to unit trust funds.

Hedge fund managers in South Africa have been regulated for a number of years and must comply with the Category IIA license requirements of the FAIS Act, which include Fit and Proper Regulations, before they can manage investors’ funds.