“As inflation risk rises, bonds no longer offer an easy diversification option — but hedge funds do.”
“Unfortunately, the 2020s brought a mix of Covid-related money-printing largesse and deglobalisation, both of which are invariably inflationary.”
“That’s why I’m looking to hedge funds as an additional tool in the inflation management toolkit.”
This is the view of Warwick Lucas, Head of Private Clients and Portfolio Manager at Vuvani Securities, expressed in his Financial Mail article “Hide in a hedge in tricky times.”
“Many of these ‘market-neutral’ funds have been achieving equity-like returns with significant risk management benefits. It’s not my place to promote any of these, but the performances from the likes of 36One, Peregrine, Steyn, Fairtree and Laurium Capital are credible and mean that when one adds hedge funds as part of a regulation 28 retirement fund, there are enough choices given the 10% asset category limit (2.5% individual fund limit).”
Smart investment strategies call for diversification
Nobel Prize-winning economist Harry Markowitz famously dubbed diversification as the “only free lunch in investing”. Ray Dalio calls diversification the “holy grail of investing”.
“Diversification minimizes risk by investing in multiple assets rather than putting all your money in one stock or sector. This helps protect your investments during market downturns.” – Lance Roberts emphasises in “Smart Investment Strategies to Build Long-Term Wealth“.
When carefully selected, a hedge fund can outperform equity markets, while mitigating downside risks and increasing portfolio diversification, says Wallace Barnes, Analyst at Steyn Capital Management.
André Steyn, CEO of Steyn Capital Management, reiterates: “A skilled hedge fund manager who is able to generate excess returns on both the long and short sides can deliver market-beating returns with much less market risk than a traditional long-only fund.”
Hedge funds seem a rational way
Hedge funds remain an underutilised tool in South Africa, even though, in 2015, South Africa became the first country in the world to implement comprehensive regulation for hedge funds. In comparison, according to a 2020 Mercer study of Europe’s largest pension funds, which covered assets of €1.1 trillion, 38% of these funds have an allocation to hedge funds, with the average size of allocations varying between 5% and 20% of fund assets. See Unlocking the power of hedge funds.
According to Lucas, “Most shares have what is called a negative skew. What this means is that markets consist of a small pack of good runners and a long pack of laggards. Hedge funds seem a rational way to face such a reality.”
Steyn Capital Management (Pty) Ltd is a licensed financial services provider and won the HedgeNews Africa awards for South African Hedge fund and/or African fund of the year in 2010, 2012, 2014, 2017 and 2021, and was nominated for awards in 2009, 2011, 2015, 2022 and 2023.
