The Rand 7 billion South African hedge fund industry was flummoxed by an order from the local regulator – the Financial Services Board (FSB) – to stop selling and managing hedge funds. A letter sent by the FSB to fund managers threw the industry into disarray, because it represents a volte-face on a promised consultation.
The FSB last week told life assurance companies to stop offering hedge funds as assets supporting endowment policies, on grounds this put the savings of other policyholders at risk. Life companies were given six months to adjust their portfolios to comply with the Long-Term Insurance Act, which precludes the use of leveraged structures.
The FSB’s letter, sent yesterday, cited the Stock Exchanges Control Act and Financial Markets Control Act, and forbids fund managers from selling ” hedge fund products or alternative investment schemes to individuals and pension fund organisations” until the FSB has decided how they can be marketed and managed.
One fund manager quoted in the local press said the industry was bemused because it had “gone to great pains to structure hedge fund products outside the Collective Investment Schemes Control Act, by not offering [them] to the general public and arranging [them] through partnerships or trusts.” Another said fund managers had “spent loads of money setting up the industry and jobs are now at stake”. FSB spokesperson Russel Michaels said there was “no reason there should be confusion because the 350 approved investment managers had never been granted permission to market hedge funds”.