CIS industry restores assets to above R3trn, hedge funds boom

The Association for Savings and Investment South Africa (Asisa) has reported that the local collective investment schemes (CIS) industry received net inflows of R108 billion in 2022, raising the industry’s total assets under management (AuM) to R3.14 trillion.

The last time the industry was above the R3-trillion threshold was in the fourth quarter of 2021, after which it battled turbulent stock markets, with AuM falling to R2.98 trillion. It only recovered in the fourth quarter of 2022.

According to Asisa, South African multi-asset portfolios attracted the majority of the net inflows for the 2022 period and the highest net inflow since the 2016/17 period, accounting for R59 billion of the total net inflows recorded for the year.

Asisa senior policy advisor Sunette Mulder believes that the industry’s performance has mirrored that of the JSE All Share Index which also ended the 2022 period similarly to how it closed off the 2021 period. In 2022 the index closed off at 73 048 points, close to the 2021 December closing of 73 709 points.

“Returning assets under management to above the R3-trillion mark was quite an achievement given the strong headwinds that our industry faced in the past year,” Mulder said in a statement.

The SA interest-bearing variable term category also registered strong interest from investors by the end of the period, attracting R24.1 billion of the net inflows recorded in 2022. However, despite this, the category did record the highest net outflows in 2022, losing R8 billion in the SA interest-bearing short-term sector, as the turbulence of 2022 proved unbearable for some investors.

“Not surprisingly, given last year’s extreme market volatility, the SA equity categories focused on niche sectors (industrial, large cap and mid & small cap) also suffered net outflows in 2022, as did the SA real estate general sector,” Mulder said.

Read: Volatility pulls CIS industry assets back to below R3trn

Hedge fund boom

The country’s hedge fund industry seems to be finally seeing a glimmer of light, after the implementation of crucial reform initiatives in 2015 ushered in comprehensive regulation that saw the industry undergoing serious consolidation.

At the end of 2022, South Africa’s hedge fund industry had R113.01 billion AuM, up from assets totalling R86.93 billion in 2021, representing a growth of 30% which Asisa has described as “unprecedented”.

Between 2018 and 2022, the industry has consolidated from 239 hedge funds to 216 funds and grown its assets by roughly R50 billion, according to Asisa data.

The industry further attracted net inflows of R5.33 billion in 2022 – much better than the R0.59 billion posted in 2021 and R2.45 billion in 2020.

“Seeing strong growth numbers for the industry is a welcome development and hopefully indicates that hedge funds in South Africa are increasingly being accepted as an important investment tool in mitigating market volatility,” said Hayden Reinders, the convenor of the Asisa hedge funds standing committee.

Reinders expects the industry to report stronger inflows in 2023 on the back of newly-effected amendments to Regulation 28 of the Pension Funds Act, which “separate hedge funds and private equity investments, allowing local pension funds to invest 10% of assets into hedge funds and 15% into private equity investments.”

“The amendments enable hedge funds to operate on a more level playing field, which should result in stronger inflows. Most pension funds are nowhere near the 10% maximum, which means there is plenty of room for growth.”

As recent Asisa data shows, 37% of AuM were held by retail hedge funds by end of 2022, while 63% were assets held by qualified investor hedge funds. However, retail hedge funds attracted higher net inflows in 2022, accounting for R4.19 billion, while qualified investor hedge funds attracted net inflows of R1.14 billion.

2023 Outlook

Speaking on the country’s investment outlook for the coming year, Asisa executives speaking at a media briefing on Monday said it is currently difficult to predict future investment activity as the market continues to battle rough turbulence.

This is especially considering the ongoing energy crisis and the country’s greylisting by the Financial Action Task Force on Friday.

When asked how being placed on the grey list – alongside 25 other countries like Albania, Barbados, Burkina Faso, Haiti, Nigeria, South Sudan and Syria – would affect investment flows, Sutton said that the reaction from the investment community should not be too jarring as the decision was largely expected by firms and as such they would have prepared for it.

“Most people have basically built it [greylisting] into their business processes already,” Sutton said.

However, Asisa CEO Busisa Jiya said that although the country’s greylisting was expected by the market, the event remains “regrettable”.

Jiya added that although Asisa’s members had no part in the final decision to place the country under increased monitoring, the association is working with regulators to ensure South Africa gets off the list as soon as possible.

Read:
Greylisting should make South Africans see red
The implications for SA now that it’s on FATF’s grey list
SA’s greylisting: The journey to claw back credibility