Much is written about improving longevity through healthy habits like a well-balanced diet, reducing stress, regular exercise and getting enough sleep. Cyclists probably understand this better than most. There are many lessons to be learned from cycling that apply to life and investing.
However, not enough airtime is perhaps given to the risks of living longer without the funds to provide for these years. Some of the reasons for investors underfunding their retirement is not saving enough, not starting early enough and not taking enough risk at a young age.
Longer life expectancies require more resources and more portfolio growth and a strategic asset allocation to investments to growth assets. Better returns and capital protection increase the longevity of your portfolio. This is why hedge funds are the ideal investment for both pre-and post-retirement portfolios.
The exciting world of hedge funds, once the preserve of high net worth and institutional investors, is now accessible to retail investors too. For many years, hedge funds in South Africa were unregulated and available to only the wealthiest qualified investors via complicated structures. This changed with the introduction of the Hedge Fund regulation in 2015, essentially opening the door to retail investors. There are no restrictions on who can invest in retail investor hedge funds (RIHFS). They are daily priced and daily dealt, providing the same liquidity as traditional unit trusts, and are available to retail investors either directly or via LISP platforms. Investments can be made for a small monthly debit order and or lump sum amount, making them very accessible.
Despite South African hedge fund managers producing excellent risk adjusted returns over the long term, the hedge fund industry in South Africa remains small. There is a misconception that hedge funds are risky investments, when in fact South Africa hedge fund managers are relatively conservative, constraining downside performance and reducing risk.
The risk profile of a particular hedge fund depends on the mandate of that fund. Some mandates may be very aggressive using leveraged positions, while others may be designed to focus on hedging and delivering low volatility returns. There are hedge fund mandates to accommodate a range of risk appetites.
Arguably, the best investment brains in the world run the largest endowment funds with a significant allocation to alternative assets. The Harvard Endowment Fund for example allocates 39% of its endowment portfolio to private equity and another 31% to hedge funds. Public equity accounted for 11% of the asset allocation. Real estate had an allocation of 5%, bonds made up 6% of the portfolio and cash was 5% (23 Oct 2023).
Over the last 10+ years, SA General Equity Funds have returned 7.2% per year, while the average Regulation 28 Balanced Fund (SA Multi-Asset High Equity Fund) delivered an average return of circa 8.0% per year, pedestrian real returns for people saving for retirement. Many hedge fund managers on the other hand, have managed to generate significant alpha, often with similar or less risk. Take the Laurium Aggressive Long Short Prescient QI Hedge Fund (“Aggressive Long Short”) for example. This fund over the same period has delivered 14.3% return per year, double that of SA General Equity Funds after fees with similar risk to the equity market (Morningstar Direct, 31 May 2024).
Better returns increase longevity of portfolios. In this scenario, we assume that R1 000 000 is invested on 1 Jan 2013 in the Laurium Aggressive Long Short Fund and the same sum invested in the average general equity fund. You then draw a monthly income of R8000, increasing at 6% per annum. After just over 10 years (30 April 2024), you would have zero left if you had invested in the average general equity fund, but if you had invested in the Laurium Aggressive Long Short Fund, you would still have R1 792 926 invested.
The good news for retail investors, is that they can now access Laurium’s Aggressive Long Short strategy via the newly launched Laurium Enhanced Growth Prescient RI Hedge Feeder Fund (“The Fund”). The Fund largely follows the same mandate as our Aggressive Long Short Fund but is structured as a local Retail Investor Hedge Fund (“RIHF”). RIHFs are open to all investors with the enhanced benefit of daily liquidity. The mandate differs slightly from the Aggressive Long Short, in that the Fund may an allocation to select international equities.
Generating and preserving wealth over time depends on the ability to compound wealth steadily and avoid large losses. With this in mind, we think that it makes sense to allocate 15-20% capital to hedge funds that are active risk managers with the ability to protect capital in negative market environments.
For more information contact your financial advisor or ir@lauriumcapital.com.
Disclaimer: Laurium Capital (Pty) Ltd is an authorised financial services provider (FSP 34142). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. There is no guarantee in respect of capital or returns in a portfolio. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Full performance calculations are available from the manager on request. The investment performance is for illustrative purposes only. The investment performance is calculated by taking the actual initial fees and all ongoing fees into account for the amount shown and income is reinvested on the reinvestment date. Highest and lowest is returns for any 1 year over the period since inception have been shown. NAV is the net asset value represents the assets of a Fund less its liabilities. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za. A Feeder Fund is a portfolio that invests in a single portfolio of a collective investment scheme which levies its own charges, and which could result in a higher fee structure for the feeder fund. The Laurium Enhanced Growth Hedge Fund is approved under section 65 of CISCA.