Page 153 - Profile's Unit Trusts & Collective Investments - September 2025

Classification of CISs Chapter 8

Popular hedge fund strategies summarised
Long/Short Equity: Buying equities expected to rise and shorting equities expected to fall,
both to profit from contra-correlated sectors and to protect the funds against downside
risks.
Equity Market Neutral: These strategies strive for low beta while exploiting pricing asymmetries
between negatively correlated assets.
Event Driven: Taking positions around significant corporate events like unbundlings, mergers,
acquisitions, bankruptcies, rights issues and share buybacks.
Fixed Income: These are strategies that either take positions on the yield curve or arbitrage price
discrepancies in interest-bearing instruments.
Multi-Strategy: Hedge funds that switch strategies and rapidly reallocate capital depending on
market conditions and available opportunities.
Volatility Arbitrage: A strategy that exploits differences in actual and implied volatilities across
options on a range of financial instruments.
Commodity: Any strategy focussed on the commodities markets which uses the wide range of
derivatives available on physical goods like agricultural products, metals and oil.
Globally, the hedge fund industry is a force to be reckoned with. There are well over 100 000
investment funds available worldwide – of more than one in 10 is a Hedge fund.
According to ASISA statistics, the South African hedge funds industry ended the second quarter
of 2025 with assets under mangement of R181bn (excluding fund of funds) reflecting a marginal
decline of 2.3% (R185bn as at December 2024). The total number of hedge funds was 216 by the
end of June 2025.
Regulations governing hedge funds
In SA, hedge funds were an unofficial part of the collective investments landscape for many
years. In 2015, however, hedge funds were pulled under the umbrella of the Collective Investment
Schemes Control Act (CISCA). Before 2015 hedge fund managers were licensed and regulated by
the FSCA in terms of FAIS but not under CISCA. They contractually agreed the terms of investment
with investors. Under the new rules many conditions of investment are regulated and cannot be
varied by the manager. These include repurchase obligations, valuation and pricing requirements,
and disclosure and reporting requirements.
Hedge funds were officially classified as collective investment schemes from 1 April 2015
(Government Notice 141 of 2015). Established hedge funds that accepted money from the public
had until the end of September 2015 to lodge applications for registration with the FSCA. An
amendment to existing regulations has created a new investment scheme category for hedge funds.
This means that the rules governing hedge funds are not always the same as those which apply to
unit trusts.
FSB Board Notice 52 of 2015, published by the Registrar of Collective Investment Schemes on
6 March 2015, set out various requirements with which hedge had to comply before 31 March 2016
(or within 12 months of registration).
For existing funds, especially those targeting retail investors, the progression to being registered
under CISCA involved several steps: application, FSCA approval, conversion of the existing fund
(historically, none did daily pricing), registration, and finally the formal launching of the reconfigured
fund. The first two hedge funds approved under the new regulations by the FSCA were launched on
1 February 2016.
The new regulations allow for two types of hedge funds: restricted (or “qualified”) and retail.
Qualified funds are aimed at the well-heeled and well-informed: a qualified investor must deposit at
least R1 million into the restricted hedge fund and must have sufficient expertise to understand the
risks of investing in it. Retail funds, which are more closely regulated, must, amongst other rules,
restrict gearing to 100% of assets and may not invest in property or qualified investor hedge funds.

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