Rand-based hedge funds increase 12% in 2021, asset survey finds

Assets in South African hedge funds reached R73.6 billion in the 12 months to the end of December 2021, according to HedgeNews Africa research, increasing by 2.02% from R72.21 billion the year before.

This comes as assets in rand-based South African hedge funds grew more than 12% while assets in dollar-based funds declined by more than 50%.

The number includes both dollar and rand classes, as well as private debt funds that report to our database and alternative strategies housed in regulated QIF structures.

Excluding alternative QIFs, assets in South African hedge funds (dollar and rand structures) grew by 2.44% to sit at R68.2 billion as of the end of 2021, from R66.6 billion in 2020 and R58.1 billion in 2019.

Alternative QIFs – which include broader alternative strategies – recorded assets of R5.39 billion, from R5.56 billion the year before.

Assets in rand-based hedge funds grew by 12.5% to R63.13 billion from R56.1 billion the year before and R51.9 billion in 2019.

Dollar-based strategies more than halved to $347.8 million (or R5.14 billion) from $718.7 million the year before – a 51.14% decline in rand terms (51.6% in dollar terms). The number had jumped by 70% in 2020 from $442.4 million in 2019.

South African long/short equity funds (rand assets), the industry’s largest category, climbed by 26.14% to R38.3 billion from R30.3 billion in 2020 and R27.93 billion the year before.

Dollar assets in the strategy came in at $325.14 million (or R4.8 billion) from $707.4 million in 2020, a 54.04% decline from $432.5 million in 2020.

Growth appears largely organic amid solid returns from the category in 2021, which gained 20.53% in a strong year for South African equities, according to the HedgeNews Africa Long/Short Equity Index.

South African fixed income, the industry’s second-biggest category, saw assets edge 6.76% higher to R10.7 billion from R10.03 billion in 2020 and R8.28 billion in 2019, amid a year of relatively muted performance. The category returned a median 7.68% during the year.

Amongst market-neutral and quantitative funds, total rand/dollar assets came in at R5.54 billion (rand-based assets R5.28 billion), from R5.38 billion the year before, a 3.02% gain. The category delivered a median return of 8.83% during the year. 

Multi-strategy funds saw assets come in at R6.03 billion from R7.88 billion in 2020, a 23.44% decline on the year before (rand and dollar assets). The category returned a median 16.3% in 2021.

Private debt strategies we track accounted for assets of R1.8 billion, a marginal increase on the year before.

The survey also includes R992.57 million in specialist strategies, primarily commodities strategies, from R791 million the year before, a 25.48% increase on 2020 numbers, after strong performance from commodities-based strategies during the year.

Offshore hedge fund assets in South African strategies accounted for assets of US$347.85 million from US$718.7 million the year before (and $442.4 million in 2019), or 7.54% of the total, down from 15.81% the year before. This converts to R5.14 billion as of December 2020, from R10.5 billion in 2020.

The industry’s top five hedge fund firms manage 52.29% of total South African single-manager assets, at R35.7 billion, up from 45% or R30 billion the year before (and R26.5 billion in 2019). 

The top 10 hedge fund firms accounted for R46.6 billion or 68.32% of assets, up from R39.6 billion, or 59.44%, the year before.

Segregated accounts comprised 16.74% of single-manager rand-based hedge fund assets, slightly down from 17.09% the year before and 23.48% in 2019.

Fifteen firms managed hedge fund assets of more than R1 billion each (including rand and dollar classes), the same as in 2020. 

By individual fund size, 17 funds managed in excess of R1 billion, up from 14 funds the year before. Of these, the bulk were long/short equity funds (nine) funds, two market-neutral strategy and two fixed income strategies. 

Of these funds, three funds had more than R3 billion under management and eight managed in excess of R2 billion. 

Our calculations show that 44.09% of South African single-manager funds (domestic and offshore) had less than R100 million under management, down from 47.24% in 2020.

Of this total, 22.83% had assets of less than R50 million, down from 30% the year before.

South African fund of hedge funds and multi-managed funds accounted for combined assets of R35.2 billion up from R24.9 billion, a 41.51% increase on the year before. These funds now account for 51.62% of the industry total, up from 44.39% the year before.

According to our records, four hedge funds closed during the period, down from 15 closures the year before. This number comprises only single-manager funds hedge funds (one multi-strategy, two market neutral, one special opportunities) and no fund of funds. This comes amid a dearth of new launches given 2021’s pandemic-hit conditions.

For single-manager funds, the survey covered 56 qualified investor funds (QIFs), and 62 retail investor hedge funds (RIFs). Assets in segregated accounts were also included.

A total of 34 fund of hedge fund products were included (23 QIFs and 10 RIFs).

HedgeNews Africa takes a conservative approach to calculating assets under management. Figures used in this survey include funds listed in our database as well as those that do not list with us but have revealed their assets for the purposes of this research.

Africa-focused assets rise 10%

Africa-focused mandates tracked by HedgeNews Africa accounted for assets of $4.8 billion up from $4.3 billion in 2020, an increase of 10.53% on 2020 as African equity markets fared better than in 2020.

This comes in a year during which the HedgeNews Africa Pan Africa/AME Index gained a median 8.96% and the MSCI Frontier Markets Africa Index added 16.45%.

The number includes equity and fixed income mandates investing in liquid markets, as well as trade finance funds, but excludes sizeable infrastructure, venture capital and private equity assets invested on the continent.

Of the total, 56.27% was invested in Africa long-only equity mandates, or $2.73 billion, compared with 49.65% of the total the year before.

Africa fixed income funds accounted for 26.21% of the total, or $1.27 billion, from 27.24% of total assets the year before. Copyright. HedgeNews Africa – May 2022.