Novare Holdings Annual Hedge Fund Survey

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All right, 21 minutes past seven o'clock here on Power Business with Mino Sipochadebe. We continue to give you the news, the business highlights this evening. And Novari Holdings released its 20th annual South African Hedge Fund survey, revealing that hedge fund assets reached a record of 106.8 billion rand in 2023, driven by increasing interest from retail investors.

Now, Quasimbele, portfolio manager at Navari Holdings joins us on the line to share some insights. Quasimbe, very good evening and welcome to Power Business. Good evening, Ignacio. I guess, Quasim, we want to know from you, I guess, give us an overview of the survey and share some of the key findings from this year's edition. Oh, yes. So we at Navari, we've been conducting this hedge fund survey for the last 20 years.

throughout the years, we've published our findings to the public. Just like with it, some of the main findings are the AUM in the industry, which were at high, 108 billion in terms of assets managed within the industry. Mostly due to performance, which was the main driver, but then there was an increased allocation from retail

that speaks to some of the innovations that have been done in the industry in terms of regulation and also manages if aligning their strategy to the retold in those cases. Yeah, and I touched on some of those drivers, but you know, I want to know what factors in do you believe are driving this growth, particularly among retail investors? You know, we've had

regulation changes into the industry. But we saw our hedge funds being registered under Cisco same as your traditional unit trust. Not so long ago, we saw these hedge funds are now being listed in list platforms. They are now accessible to call it your IFAs, your high-network individuals.

put some of their money in there. Also, you know, when the industry started getting regulated, we have now two type of hedge funds. We called it a retail hedge fund and a qualified hedge fund. So most of the growth has just been on that retail portion of that strategy.

Yeah, sure. Despite then, the challenging economic conditions, the hedge fund industry achieved a 13.7% growth in assets. What does this suggest in about the appeal of hedge funds in uncertain markets? That is a very good one, because we always talk about the benefits of including hedge funds into a fair balance fund.

This is the benefit that the asset class does offer to investors whether you want to enhance your return, whether you want to protect the downside, whether you want to justify away from your safe, dramatic risk because you do get strategies that are totally uncorrelated to the traditional market.

And also, like, enhance the risk-return profile of any portfolio. So this was just some of the, at a very high level, some of the benefits that I think the retail market is starting to catch up to hedge funds because there was a lot of discrepancy in terms of the education on what is this asset class. So I think now there's a bit of attraction there. You're starting to see that with the retail market is growing.

You know, given that hedge funds are gaining traction due to their ability then to deliver returns in volatile markets, what strategies have been most effective then for South African hedge funds in recent years?

You know, buying hold, I mean, it could be longer buying and hold, I say, expecting it to rise in value, or we could short expect, like, there's been a lot of short opportunities in the last couple of years, but, you know, global uncertainty, not just in South Africa, that's just across the world. It's been, yeah, many of the finding opportunities in still making a return, even when markets are falling.

And, you know, that's just what sets the architecture apart. Yeah. And then, you know, quasi, the survey highlighting that funds with assets on the management between 1 billion and 2 billion rand were top performers averaging 14.3% returns. What differentiates these funds, funds smaller or larger ones in terms of strategy or management? So, from the findings of the survey, this has been a recurring thing. That's why we keep this, you know,

classify the managers by the side, because running a hedge fund is a unique skill. You, like, managers might be, um, professional, like, uh, already existing, um, money, managers call it like, uh, asset asset managers. But now translating to hedge fund, um, trically equal to now, it's a little bit different. We have always find that it's always been the bigger guys who have like a, uh, sort of like a hold

who still, because they have the assets, there's additional fees that are they when you're running a hedge fund. So with the industry over the last few years, the struggling to attract the growth that it should have attracted. So there hasn't been a lot of money flowing into the asset class. I mean, 106 billion is not a lot of money compared to the entire savings pool in the country, which is over 2 trillion. So 106 billion compared to 2 trillion.

a trap in the ocean. So the industry did say to attract new assets. So you find that the older and established hedge fund managers who focus on your hedge fund, they tend to do well in terms of performance because they've got systems. They have the assets to find the families additional costs that comes with running a hedge fund.

Smaller, smaller hedge fund managers, we do see some of them coming into the industry, but it's very rare that we survive. We do find the managers that come from other hedge fund houses that serve their own shop. Those ones, they have some, some, some pay some survivors in there, but new, new talent, like that's quite rare. Yeah.

Yeah. And Quasi, I want to know from you then, when it comes to a transformation, the survey revealed limited progress in diversity and inclusion with African managers making up only 16.1% of senior roles. What barriers persist in improving racial and gender diversity in the industry? Yeah, the industry is coming over.

And unfortunately, there's some of the shortcomings that we do see. Like I did say, running hedge funds is a bit of a niche skill in the country. So there haven't been too much skill transfer in the industry. But then as the industry is growing, we see innovations from the allocators, from the managers themselves, to address some of these concerns recently.

One of the big players in the industry, they did announce that they have certain transformation targets that managers should at least get to or then to even be considered in the pipeline before any allocation. So things like that. And I think also with the industry going, I'm going to find that there's going to be a lot of

Many set a fight for, you know, programs that are going to address these sort of issues and, you know, hole in that skill set, because running H-1 is, you know, like a very niche skill. Definitely. I guess we'll watch out for that space, but that's all the time we have this evening, Guazi. Thank you so much for speaking to us this evening. Thank you for your time in this evening.

Alright, that was Guazimbele, a portfolio manager at Navari Holdings.