1. Hedge Funds in South Africa: Myths, half truths and truths
AIMA Media Briefing

2. AIMA – a new manifesto Regulate the industry
De-bunk the myths of hedge funds
Grow assets under management

3. Introduction to AIMA
A global association in 47 countries (1200 corporate members).
Established in 2003 after hedge funds had been in SA for five years
Achieved first major milestone in 2007 with Hedge Fund manager regulation.

4. For discussion Myth 1 - the current landscape Myth 2 - returns v risk
UK/Europe/the world (more sizzle than steak)
SA (all steak and no sizzle)
Myth 2 - returns v risk
Less risky than long-only equity investing
Better returns
Not only about equities

5. The retirement savings industry comparison
97% of Global Pension Market
Equities : %
Fixed interest : %
Hedge Funds, : %
real estates,
commodities
and private equity
RSA industry
Equities : 75%*
Fixed interest : 8%*
Cash : 17%
(Including cash)
*Hedge Fund Retirement Asset Estimate: % with assets in the region of 18.2bn.
Source: Alexander Forbes Survey, Merryl Lynch and Watson Wyatt

6. 2 Year Performance Analysis
2 Year
2008
2007
Annualised
Return
 Volatility
ALSI
-8.5%
-23.2%
19.2%
 17.5%
Cash
22.2%
11.7%
9.4%
 0.6%
Fund 1
56.4%
40.0%
9.5% 
Fund 2
52.7%
16.0%
31.6%
4.1% 
Fund 3
45.3%
14.2%
27.3%
6.7% 
Fund 4
43.5%
8.3%
32.4%
6.5% 
Fund 5
38.1%
20.2%
14.9%
5.1% 
Fund 6
36.9%
5.0%
33.1%
10.2% 
Fund 7
35.1%
17.5%
15.0%
3.6% 
Fund 8
33.6%
-5.1%
40.8%
 12.1%
Fund 9
19.4%
11.9%
Fund 10
32.3%
20.5%
9.8%
3.2% 
Fund 11
12.4%
17.7%
 5.0%
Fund 12
29.3%
15.6%
11.8%
4.7% 
Fund 13
25.9%
-2.2%
28.7%
3.3% 
Fund 14
25.8%
12.5%
3.5% 
Fund 15
24.8%
1.3%
23.2%
 6.1%
Period: 2 Years Ended 31 Dec 2008

7. The benefits of hedging Allan Gray Equity vs. Allan Gray Optimal* *
1 Feb 2008 – 31 Jan 2009
+15.4%
-4.7%
Data Source: MoneyMate
Alpha Asset Management Research, 2009
* Includes dividends re-investment

8. The benefits of hedging continued but… Allan Gray Equity vs
The benefits of hedging continued but… Allan Gray Equity vs. Allan Gray Optimal * *
1 Feb 2006– 31 Jan 2009
+35.3%
+29.6%
Data Source: MoneyMate
Alpha Asset Management Research, 2009
* Includes dividends re-investment

9. Hedge Funds in South Africa: WHO are the players?
+/- 100 licenses granted by the FSB under FAIS Act, 2002
Allan Gray/Orbis
Investec
Coronation
RMB
Old Mutual
Sanlam
Cadiz
Peregrine
Oryx
Visio
…and 90 other managers
Total Industry = R55bn
R29bn
R26bn

10. International trends say
AUM of the local hedge fund industry should be 4x to 8x current size or between R120 – R240 billion

11. RSA – world leader in risk management
Source: Alpha Asset Management Research, 2009

12. Risk mitigation driven by the Fund of Hedge Fund players
Alpha
Blue Ink
Brait
Clade
Edge
Legae
Orange
Sygnia
Symmetry
Trialpha

13. Fund of Funds Managing the Risks
Position Size Concentration
Liquidity
Exposures
Volatility
Fund 1
Fund 2
Fund 3
Fund 4
Fund 5
Fund 6
Fund 7
Fund 8
Fund 9
Fund 10
Fund 11
Fund 12
Fund 13
Fund 14
Fund 15
Fund 16
Fund 17
Fund 18
Fund 19
Fund 20
FoHF 1
FoHF 2
FoHF 3
FoHF 4

14. RSA vs. Global Hedge Fund Industry
Transparency
Excellent Self regulated industry leader
Are proposing going this route
Liquidity Line of Sight of Underlying Position
Excellent 70% of managers reporting daily
Independence
FoHF insist on independence
Moving there but not yet industry standard

15. Making risk mitigation a requirement for regulation
AIMA meeting with FSB on 24 March in collaboration with ASISA to propose institutionalised risk mitigation

16. WHAT is a Hedge Fund actually?
A fund that can go short (either through selling an index or borrowing shares and selling those in the market).
A fund that can invest more than 100% of it’s capital.

17. Myths about shorting and leverage (gearing)
Portfolio
Assets
Counters
Average Position Size
Long Book
R60m
30 Counters
2.0%
Short Book
Cash Holding
Invested Capital
R100m
Less Long Book
-R60m
Plus Short Sales
+R60m
Total in cash
Gross Exposure
Long Book
R60m
Short Book
-R60m
Total
R120m
120%
Net Exposure
Long Book
R60m
Short Book
-R60m
Total
R0m 0%
Source: Alpha Asset Management Research, 2009

18. Hedge Funds in generally positive markets
Long-only
Manager
Hedge Fund
manager
R43.36
R38.70
January ‘08
Assets
Liabilities
Assets
Liabilities
R1.00M
(26K SHP
shares)
R1.00M
(26K SHP
shares)
-R1.00M
(22K JDG
shares)
R1.00M
(Cash)
R45.15
May ‘08
Assets
Liabilities
Assets
Liabilities
R33.94
R1.10M
(26K SHP
shares)
R1.10M
(26K SHP s
hares)
-R0.75M
(22K JDG
shares)
R1.05M
(Cash)
Profit:
R0.1M (10%)
R0.4M (40%)
Source: Fairtree Capital, 2009

19. Hedge funds in generally negative markets
September ‘08
Long-only
Manager
Hedge Fund
manager
Assets
Liabilities
R1.00M
(17K IPL
shares)
-R1.00M
(292K SPG
(Cash)
December ‘08
R0.88M
-R0.33M
R1.05M
-R0.12M (-12%)
P&L:
R0.6M (60%)
R60.50
R53.14
R3.42
R1.14
Source: Fairtree Capital, 2009

20. Regulated Hedge Fund says it’s good for grannies, too
As per Fund Fact Sheet
Suitable for those investors who:
Seek absolute returns regardless of stock market trends. (Positive returns always).
Are risk averse and require a high degree of capital stability.
Are retired or nearing retirement.
See the diversification benefits of uncorrelated returns relative to shares or bonds.
Wish to diversify a portfolio of shares or bonds.
Wish to add a product with an alternative investment strategy to their overall portfolio.
Actual Current Fund Structure (A Hedge Fund)
Equities (long positions)
76%
Hedging (shorting)
-70%
Gross Exposure (>100% of capital invested)
146%
Net Exposure 6%
Source: Allan Gray Optimal Fund Fact Sheet

21. Long Term Performance History Broad-based FoHF vs
Long Term Performance History Broad-based FoHF vs. Regulated Hedge Fund (CISCA) *
1 Mar 2003 – 31 Jan 2009
+100%
+72%
*Dividends re-invested at ex-dividend date
Data Source: MoneyMate, Independent Data Services
Alpha Asset Management Research, 2009

22. Performance Statistics Broad-based FoHF vs. Regulated “Hedge” fund
1 Mar 2003 – 31 Jan 2009
FoHF
CISCA “Hedge” Fund
Cumulative Return
99.8%
72.1%
Annualised Return
12.4%
9.6%
Average Monthly Return
1.0%
0.8%
Annualised Std Deviation
3.0%
2.5%
Sharp Ratio (Rfr 10%)
0.80
-0.15
Information Ratio
4.10
3.81
% Positive Months
90.1%
88.7%
% Negative Months
9.9%
11.3%
Largest Monthly Decline
-1.4%
-0.8%
Worst Peak-to-trough Decline
2003 Mar – Dec
13.0%
10.9%
2004
10.5%
4.3%
2005
15.5%
9.0%
2006
14.9%
8.4%
2007
14.2%
9.5%
2008
4.6%
12.3%
Source: Alpha Asset Management Research, 2009

23. Same principle applied globally and FSB-registered for sale in S.A.
Fund Objective
The fund seeks capital appreciation in US dollars on a low risk global portfolio.
Fund Structure (A Hedge Fund)
Equities
85%
Hedging (shorting)
-69%
Gross Exposure (> 100% of capital invested)
154%
Net Exposure
16%
Orbis Optimal fund – one fund – larger than the entire industry in SA,
($2.8 billion / R30 illion)
Source: Orbis Optimal Fund Fact Sheet

24. 3 Year Performance History Orbis Global Equity vs. Orbis Optimal*
1 Mar 2006 – 28 Feb 2009 (Dollars)
+6.5%
-32.3%
* Includes dividends re-investment
Data Source: Orbis Mutual Funds
Alpha Asset Management Research, 2009

25. 5 Year Performance History Equity L/S vs. ALSI & Equity Unit Trusts
Data Source: AfricaHedge, I-Net Bridge, Micropal
Alpha Asset Management Research, 2009

26. South African HF Composite 5 Year Performance History
Data Source: AfricaHedge, I-Net Bridge
Alpha Asset Management Research, 2009

27. Regulated environments
Unit Trusts - Collective Investment Schemes Control Act, 2002
Investment Insurance Policies - Long Term Insurance Act,1998
Variable Rate Debenture - Companies Act, 1973
Trusts - Trust Property Control Act, 1988

28. The question is not WHY but rather WHY NOT have a choice hedge in the mainstream?

29. Good regulation is good for business AIMA SA determined to lead from the front