In a move designed to bring much needed transparency to the unregulated hedge fund industry, the Johannesburg Stock Exchange Ltd (JSE) announced today that it has acquired Momentum’s Managed Account Platform (MAP) after receiving approval for the transaction from the Competition Commission. This risk management tool, which offers hedge fund investors greater protection by segregating investors’ assets from the hedge fund manager, was developed to monitor hedge funds’ trading activity, thereby ensuring that they remain within agreed investment mandates.
Allan Thomson, Head of Derivatives Trading at the JSE, said the acquisition makes the JSE the first exchange worldwide to endorse a managed account platform which would provide more transparency to hedge fund trading.
“We are delighted to have concluded this acquisition. The JSE has been working with MAP for some time now. We believe that this deal will be beneficial for the markets as it provides a safe platform for the hedge fund industry to grow,” he says.
Rand Merchant Bank and Momentum developed MAP in 2007 as a way to create a more robust framework for institutional participation in the South African hedge fund industry. “The market has been regarded as opaque, both locally and globally,” says Braam Jordaan, responsible for Momentum Alternative Investments.
The gradual shift towards increased institutional investment into the hedge fund industry over the past few years resulted in the need for a broader application of the technology. Says Jordaan: “It became clear early on that this concept had greater industry-wide benefit and it needed to be driven by an independent industry-wide player. The JSE, with its unique position in the South African financial markets landscape, is ideally placed to fully realise the potential of MAP.”
With the recent changes to Regulation 28 of the Pension Funds Act coming into effect on 1 July 2011, this framework is particularly useful. The change was the latest in a series of regulatory changes making hedge funds a more attractive option for institutional investors who are now able to invest up to 10% of their assets in hedge funds, up from the 2.5% allocation previously reserved for “other” investments, including private equity.
"This is an exciting development for the South African hedge fund industry. Momentum is proud to be associated with the development of this technology which has introduced a risk management framework more akin to that which institutional investors would find acceptable. We believe that through this transaction, the JSE will play a pivotal role in the development of the hedge fund industry. To this end, the exchange can be assured of our continued support," says Jordaan.
Thomson says that hedge funds play, and will continue to play an important role in the South African financial markets. “MAP is a significant move forward towards giving investors greater confidence that hedge funds are operating within their mandates,” he says.
The hedge fund industry in South Africa, like the rest of the world, is currently unregulated and has been fraught with reputational problems. Thomson believes that while it may require a paradigm shift for the industry, a tool such as MAP managed by an entity such as the JSE (which is independent of any of the funds) would be welcomed by the industry.
“The JSE is confident that this venture will advance the supervision and credibility of the hedge fund industry and assist the already sound reputation of the South African financial markets,” concludes Thomson.