Search This Blog

3 Sept 2007

South Africa's New Hedge Fund Regulations

Just as South Africa’s Financial Services Board (FSB) is coming out with new regulations governing the area’s hedge fund industry, Terrapinn is presenting Hedge Funds World Africa 2007.

Last year there was a record turnout of 444 delegates and speakers at the Mount Nelson Hotel. This year local and international fund managers, asset managers, hedge fund managers, investment specialists and institutional investors will meet at the Cape Town International Convention Centre to celebrate the 7th annual hedge fund industry event.

The Alternative Investment Management Association’s South African chapter chairman, Ian Hamilton, welcomed the new regulations, saying the association had been working with the FSB and other industry organizations for more than two years “and our efforts have come to fruition”. The new regulations require anyone managing a hedge fund to apply to the FSB for a category IIA financial services provider license by the end of February. Attention will be paid to the applicant’s operational ability and risk management processes, as well as the types of investors who invest in the funds.

The FSB sent letters to investment managers approved by the FSB warning them that although allowed to buy and sell securities on behalf of their clients, it does not provide them with any form of approval to either manage hedge funds or to sell hedge funds to individuals or pension fund investors.

The final point of the letter stated that hedge fund managers may in no way make any representation to clients that they are approved to manage hedge funds or intimate that hedge funds are a regulated product in South Africa.

In terms of the current regulatory regime, hedge funds fall outside the scope of existing regulation and there is nothing preventing investment managers from conducting the business of a hedge fund provided that they do not represent to have been approved by the FSB to manage and/or solicit for investment into hedge funds.

It is therefore suggested that any hedge fund material should state such restrictions clearly on the face of such documentation and all participants in the hedge fund industry must ensure that they act responsibly in their conduct.