The Financial Services Board, financial markets regulator to the government of South Africa, has recently increased the limit to which pension funds can invest in the hedge fund asset class. Following this, South African pension funds are now permitted to invest up to 10% of their total assets under management into hedge funds, which could lead to a vast change in the makeup of Africa-based institutional investors.
South Africa-based pension funds, including both private sector and public funds, currently account for 20% of all active South Africa-based institutional investors tracked on Preqin’s Hedge Fund Investor Profiles online service. Collectively, these pension funds account for approximately 21% of all institutional investor capital in South Africa; however, these pension funds represent a much smaller amount of capital than pension funds in the US, for example, where pension funds represent approximately 27% of all US institutional investor capital. South Africa-based pension funds that are currently actively investing in hedge funds include Sentinel Mining Industry Retirement Fund and Eskom Pension & Provident Fund. Historically, both of these funds have preferred to make hedge fund investments that have been established in Africa, in particular South Africa.
South Africa-based institutional investors have historically favoured investing with hedge fund managers based domestically. Therefore, as well as increasing the number of active hedge fund investors based in South Africa, these new regulations may also lead to an increase in the amount of fund offerings from South Africa-based hedge fund managers, as vehicles could be established to meet the new demands from pension funds. Preqin’s Hedge Fund Analyst online service currently tracks over 150 hedge fund vehicles which are managed in South Africa, including both single-manager vehicles and funds of hedge funds.
Despite representing a relatively small proportion of investor capital, South Africa-based pension funds are an important group of investors in hedge funds in the region. This looks set to continue, given pension funds’ new freedom to increase their allocations to the asset class.