How To Start A Hedge Fund In South Africa
What Is a Hedge Fund?
Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money and trading esoteric assets, in an effort to beat average investment returns for their clients. They are considered risky alternative investment choices.
How To Start A Hedge Fund In South Africa
The first step of establishing a hedge fund is understanding the rules and regulations of the local regulator – for example, in the UK, the Financial Conduct Authority (FCA) – the country’s governing body that regulates hedge funds. In addition, under the Financial Services and Markets Act 2000, hedge fund managers are legally required to gain approval from the FCA in order to establish a new fund. The approval process can take up to six months, and a new fund may be monitored for up to a year afterwards.
While there are various factors that are taken into consideration when it comes to approving a new hedge fund, part of the process requires the investment manager to prove they have the financial resources as well as the appropriate staff, systems and controls needed to manage the fund.
The hedge fund’s potential staff also have to demonstrate their competency by passing an exam that is either fully or partly based on management experience outside of the UK.
There are also other factors that the founders of new hedge funds need to consider, such as the structure that the fund will operate under and providers that will manage it.
Regulations will differ by territory and market, so it’s vital to refer to local regulators for clarity in all cases.
How to structure a hedge fund
The structure of a hedge fund is determined based on the types of investors it wishes to work with and their needs, such as tax status, voting rights and ability to use leverage. Typically, there are three main structures that dominate the hedge fund sector, including stand-alone, master/feeder & umbrella funds and segregated portfolio companies.
A stand-alone structure is when a hedge fund plans to operate as a single fund, the shares of which can be sold to investors. On the other end of the spectrum, you have segregated structures, which are treated as separate legal entities whereby each investor has a separate fund account with its own assets and liabilities.
Then, as a kind of middle ground between the extremes of the stand-alone and segregated structures, you have master/feeder, or umbrella, structures. These are used when the requirements of each investor, such as tax status or leverage restrictions, differ from one to the next. This structure works by creating separate feeder accounts – that differ depending on the needs of each investor – which feed into the master fund, which trades on behalf of the separate funds.
Frequently Asked Questions (FAQs)
How much do I need to start a hedge fund in South Africa?
Qualified Investor Hedge Funds require a minimum investment of R1 million and are open to investors with a solid understanding of the investment strategies deployed by hedge funds and the associated risks.
Are hedge funds allowed in South Africa?
It is prohibited for any person to solicit investments from members of the public in South Africa into an offshore hedge fund that is not approved under section 65 of the CISCA. The term “solicit” is defined to include any action to promote investment.
Can anyone start their own hedge fund in South Africa?
Yes, you could start with much less capital, or go through a hedge fund incubator, or use a “friends and family” approach, or target only high-net-worth individuals. But if you start with, say, $5 million, you will not have enough to pay yourself anything, hire others, or even cover administrative costs.
How do I become a hedge fund manager in South Africa?
How do I become a fund manager in South Africa? A diploma or degree is usually necessary for entry into the profession of fund management. Qualifications in business studies, management, statistics, finance, mathematics, accounting or economics can be helpful, as can an MBA or similar professional qualification.
How many hedge funds are in South Africa?
AIMA (Alternative Investment Management Association) estimates that South Africa has in excess of 80 operating hedge funds with an approximate value of over nine and a half billion rand of assets invested.
Is Sanlam a hedge fund?
Capricorn Sanlam Collective Investments Performer Qualified Hedge Fund The portfolio may include a combination of assets in liquid form, listed and unlisted transferable equity securities, money market instruments or cash equivalents, bonds, listed and unlisted fixed interest rate securities.
Can a hedge fund own a bank?
Banks cannot own, invest in or sponsor hedge funds, private equity funds or other trading operations (subject to certain exceptions).
Is it hard to start a hedge fund?
With a little bit of capital, it is relatively easy to start a hedge fund. However, implementing risk controls, growing assets, hiring staff, and running the organization as a profitable business while producing positive performance is very challenging.
Do you need a degree to start a hedge fund?
Hedge fund managers typically have a minimum of a bachelor’s degree, although many companies prefer a master’s degree. Hedge fund managers may have a degree in accounting, finance, economics or business administration.
Is investment management a good career in South Africa?
Is it worth going into investment banking in South Africa ? Being an investment banker is one of the best-paying jobs available today, excellently. Meaning, when it comes to salary, it surpasses other jobs by far. It’s also one of the hardest jobs possible, in every way you can think of.
How do I become an investment analyst in South Africa?
What subjects do you need to become a financial analyst in South Africa ? At a minimum, financial analysts are expected to hold a bachelor’s degree in accounting, finance, statistics, economics, business administration or another related field. A master’s degree is often required for more advanced positions.
What qualifications do I need to be a fund manager?
Becoming an investment fund manager takes education, hard work, and perseverance. Most brokerage firms or investment houses will look for applicants to possess a Bachelor’s Degree in Economics, Finance, Financial Planning, Business, or Mathematics. For some positions, an advanced degree such as an MBA is required.
How does a hedge fund make money?
Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM). Funds typically receive a flat fee plus a percentage of positive returns that exceed some benchmark or hurdle rate.