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Back to News Merging Local and Global Hedge Funds
Oct 2019
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Dear Client

1.            See below your updated investment summary report.

2.            We mentioned previously that the administrator SANNE we make use of for our South African Hedge Fund of Fund, is not permitted to buy offshore hedge funds which are performing much better, and as we are allowed to switch to another administrator via whom we are permitted to buy offshore hedge funds, we have in fact already given SANNE notice accordingly.  Please take note of the important reasons why we are switching over from SANNE to International Assurance LTD, if you do not have enough time read at least par 17 to 19.

 

3.            Your investments in Moriah Global Fund of Hedge Fund have grown in USD for the month of August with 3.82%% and YTD (Year to Date), 19.05%. In ZAR it was 9.97% and YTD was 26.05%. The CAR (Compound Annual Return net of fees) in ZAR is now 14.48%, which is lower than the growth rate over the past 12 months.

 

4.            The reason for this is that we have become more experienced with quality, successful hedge funds and because of this confidence, we have increased our exposure to these funds over the past 12 months, to more than 70% and we trust that the growth we have been seeing over the past 12 months is an indication of future long term growth, we estimate it to be between 12% and 16% p/a.

 

5.            As mentioned previously, the fund managers of the underlying hedge funds of Moriah Global have been proving to us over the years that they know what to do during global market crashes and corrections.

 

6.            Below you will see that the KG Investment Fund with a CAR of 17.92%, has grown 17.92% during the 2008 share market crash and 27.8% during 2009 (the year thereafter). Global Sigma did not yet exist during the 1998 Far East Pacific Crash, but Haidar Jupiter below, grew by 19.28% the year thereafter, and when world markets crashed more than 30% during the IT Bubble Crash of 2000, you will notice that this fund grew 45.98%.



7.            Above you will notice that in the case of Haidar Jupiter, under the YTD column that the fund had in fact, a drawdown of -6% during the 2008 Credit Crunch Crash, but the American market came down with more than 60% during that year, as was the case with most other markets worldwide.

 

8.            Above you will notice that Haidar has grown 18.09% for the month of August alone, and is now YTD standing at 46.5%. The KG Investment Fund has grown YTD with 22.06%. Global Sigma has a YTD of much less, namely 5.9%, but it is still very good in ZAR terms, for those who are drawing their ZAR pension from Moriah Global, or intend to draw their income from Moriah Global. However, we are happy with Global Sigma, because where KG has a STD (Standard Deviation or mathematical equation of volatility) of 13%, Haidar has a STD of 16.02% and Global Sigma, a very low STD of 5.31%. As you can see above, Global Sigma has grown with 15.3% for 2018, when KG Investment Fund only grew with 3.3% and Haidar only 9.9%, which gives good diversification.

 

9.            To compare the three best Hedge Funds in South Africa with the three best offshore hedge funds as above, we have calculated on a spreadsheet the performance of 36One Hedge Fund, Fairtree Wild Fig Fund, and Peregrine Capital Growth, as you can see below.

 


 

10.          Above you will notice the CAR (Cummulative Average Net of Cost Return since inception) of 36One, is 8.71%. The CAR of Fairtree only 8.56% and the CAR of Peregrine only 11.12% compared to the offshore Funds, KG Investments above with a CAR of 17.92%, Global Sigma with a CAR of 14.7% and Haidar Jupiter with a CAR of 19.36% in USD per annum.

 

Outside the jurisdiction of South Africa, it is much easier for us to get long term growth, in hedge funds as well as growth funds/unit trust funds.

 

11.          As South Africa is becoming more socialistic and less productive, regulations are increasing in the financial services industry where our hedge fund of fund is not allowed to buy offshore hedge fund of funds and is only allowed to buy 30% of locally registered growth funds, which do not compete at all with the very best offshore. Therefore, no fund of fund or hedge fund of fund registered in South Africa, will be able to compete with a well-managed fund of fund outside the jurisdiction of South Africa, for instance in Mauritius where we are making use of the administrator, International Insurance LTD. In Mauritius where there is much less regulation, we are allowed to buy any registered hedge fund in the world, but also any registered growth fund as well as shares, because of which we had the opportunity to buy some of the listed shares of the well-known Warren Buffet.

 

12.          According to our research, the best locally registered offshore fund over the past few years, has been Blue Alpha which has grown with 18.66% in USD after fees, up to the second week of September (see below).

 


13.          Above you will notice that the best growth fund worldwide, according to our research, which we have purchased for Moriah Global, is JP Morgan, which has grown YTD up to the end of September 2019 with 43% after fees! More than two times better than the best in South Africa, namely Blue Alpha above, with YTD only 18.66%.

 

14.          As the socio-political problems in South Africa are increasing, more and more clients are transferring their voluntary contribution investments to our Moriah Global FoF or to a combination of funds there that suites their risk profiles and circumstances. See attached hereto the latest news concerning Zimbabwe according to which their inflation rate of 67% a few months ago has now increased to 300% p/a.  ZAR/USD further depreciated now to more than 15 ZAR/USD.

 

15.          Another  advantage of Mauritius, is that a client is allowed to have his wife as a joint owner or whoever he prefers, because of which the investments do not become part of a frozen estate (which can takes years to unwind in South Africa these days) when he passes away. The further benefit is that once the client starts to draw income at retirement, the growth portion of the capital withdrawals will be seen as capital gains, of which only 35% will have to be declared, of which the client can distribute 50% to the joint owner, which will cause both of them to get into a much lower tax bracket.

 

16.          I have noticed that you have not made your son or daughter joint owner as yet and for your convenience I have attached the necessary documents for both of you to sign and email back to us if you would like to do this. You will stay in control and can always change it in the future.

 

17.          You may recall that in South Africa we do not need permission to move from one administrator to another administrator, if we feel that we can get a better service from the next administrator. You may recall that we moved from Oak Advisory Services to SANNE a few years ago in the case of our Hedge Fund of Fund. As SANNE is limited to South African Funds, we have already given SANNE notice of our intention to move to International Insurance LTD, because of which we are now switching all the underlying South African Hedge Funds to cash so as to be able to convert that to USD.

 

18.          As you are not allowed to purchase USD denominated hedge funds with ZAR, you must first open a USD account at your bank so as to be able to convert your ZAR to USD, but we advise against that as the local banks (according to our experience over the years), without exception, will charge you a margin, which is the difference between the bid and the offer price of the available USD of up to 5% and even up to 7%, although they say they do not charge anything. However, you will only be able to see that they have charged you if you have a forex trading program on your laptop, which shows the price movement every second. We therefore decided years ago, to enter into a contract with an agent of Investec Bank concerning the margin the bank charges, but lately we prefer the agent Exchange for Free of RMB, which charges 0.6% and for amounts over R1 million, only 0,4%.

 

19.          Please send us your proof of address not older than 6 months and TAX nr so that we can send you the required documents to open an Exchange4free USD account with Mercantile Bank.

 

Friendly Greetings

 

Andre

 


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