Drivers of Hedge Fund Utilization in
Date
2011-04-01
Authors
Dawson, Robert
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Abstract
The research assesses the factors that motivate or discourage institutional
investors’ capital allocations to the hedge fund industry in South Africa. With
the hedge fund industry growing substantially in South Africa and world wide,
it is necessary to understand which factors investors consider to be detractors
from their possible investment. Conversely, it is necessary to establish the
reasons that institutions would allocate a portion of the investable capital to
hedge funds. Four factors are identified for each of these two broad
categories.
The research is conducted though a series of interviews with both hedge
funds and fund of hedge funds on the investment side of the research. On the
institutional side a number of pension funds, consultants and actuaries have
been identified and are interviewed to establish their views on the factors
identified.
It was found that both hedge funds and investors believe that the hedge fund
industry in South Africa is still too young to make judgements on a number of
issues. These included whether the hedge funds actually produce alpha, or if
it is just enhanced beta.
Hedge funds have been established for approximately the last 5 years, in
which time South Africa has had a bull market. The interviewees believe that
when the markets turn and change into a bear market, many of the hedge
funds will be more highly correlated than they believe to be the case.
Substantial leverage in the hedge funds, causes greater volatility in the return
profile, as well raising the risk of blowing up.
Description
MBA - WBS
Keywords
Hedge funds, Johannesburg Securities Exchange