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Amplify Investment Partners’ fund managers have provided actionable solutions to break barriers to hedge fund adoption, writes Nico Janse van Rensburg, Head of Retail Distribution at Amplify.
Insights from the adviser forum
I recently attended an adviser forum with Amplify’s valued fund managers at Matrix Fund Managers, Terebinth Capital and OysterCatcher Investments. Our panel discussion unpacked several hedge fund pain points and challenges that advisors face when advising clients on hedge fund investments.
It was clear from the forum that the adoption of hedge funds continues to grow, and that perceptions about a lack of transparency in hedge funds are changing. The importance of benchmarks in terms of how fees are charged, to ensure fairness to investors was also a topic of discussion. Regulation is one solution, but it was interesting to note that advisers have become increasingly comfortable using hedge funds in their portfolios.
Amplify’s role in the hedge fund landscape
Amplify is a significant player in the hedge fund space, with R13 billion in AUM across 10 funds covering multi-strategy, fixed income and long/short equity strategies for its investors to diversify their portfolios alongside its extensive portfolio of long-only unit trusts. The hedge funds, with risk profiles ranging from cautious to aggressive, are managed by several top hedge fund managers.
Greater transparency through regulation
Hedge funds have often been perceived as secretive and complex, and often described as a “black box”. However, South Africa was the first country globally to regulate hedge funds under the Collective Investment Schemes Control Act (CISCA) in 2015. This means that retail hedge funds (RHFs) are subject to stricter rules on disclosure, asset eligibility and leverage limits compared to qualified investor hedge funds (QIHFs). They must provide ongoing disclosure to both investors and regulators. RHFs disclose granular details like gross and net exposure, liquidity metrics, valuation methodologies and leverage levels. This improved transparency has significant implications for advisers, enabling more robust due diligence and enhanced client communication.
The evolution of hedge funds
Most hedge funds were historically viewed as risky, but the opposite is true, as they often utilise leverage, short selling and derivatives as risk management tools. Many RHFs pursue a market-neutral strategy aimed at providing positive absolute returns, regardless of market conditions.
This low correlation to markets (and other long-only funds) has led these funds to have shown lower drawdowns and better downside protection than perceived. In fact, they can be used to reduce overall portfolio volatility and enhance risk-adjusted returns.
Alternatively, certain long/short equity funds are more aggressive (higher risk) and are focused on outperforming equity markets by buying (going “long”) undervalued assets and selling (going “short”) overvalued assets. These types of funds are used for potential return enhancements to a portfolio.
Supporting advisers with strategy-specific insights
Amplify assists advisers to assess strategy-specific risks, not just the “hedge fund” label, especially when comparing hedge funds to each other and to long-only funds.
Fair and transparent fee structures
Fees are clearly defined and tied to performance, and Amplify’s fees are intentionally priced for retail investors. Funds may use cash or equity benchmarks, and fees are structured with a hurdle rate (the minimum return before a performance fee is charged) and a high-water mark, ensuring a fee is only paid on new gains, not on the recovery of past losses. Performance fee caps on Amplify funds are also used to ensure customers are treated fairly.
Liquidity and accessibility
Liquidity is also no longer a barrier as RHFs have been structured to provide the access advisers and their clients need. All Amplify RHFs offer daily liquidity and pricing, similar to unit trusts. They are also available on all mainstream platforms. Daily liquidity allows advisers to rebalance portfolios more efficiently and effectively respond to market changes.
Quality and compliance
But it does not end there. The various assets and instruments Amplify’s managers invest in, as well as those that are traded over the counter (OTC) in the derivative market, are of high quality and high liquidity. Amplify plays an important role by providing an extra layer of monitoring of its funds to make sure they adhere to all regulatory and liquidity requirements.
Commitment to education and investor confidence
Given the strong AUM growth over the past year and continued demand for hedge funds, we know we have a responsibility to continue to educate and inform advisers and clients – not just on different hedge fund strategies and their return benefits – but also on the perceived risks and address any concerns they might have. The benefits are ultimately for clients, who trust us collectively as stewards of their capital.
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