Drivers of Hedge Fund Utilization in

Dawson, Robert
Journal Title
Journal ISSN
Volume Title
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.
Hedge funds, Johannesburg Securities Exchange