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Alternative Investments: Hedge Funds

Use the full investment universe to protect and grow wealth

We give you a broad set of innovative investment tools, to protect and grow wealth. When volatility increases, asset classes tend to behave in similar ways. Alternative investments can improve diversification and reduce overall volatility. Alternative investment managers have more flexibility to maximise returns.

For detailed information on Hedge Funds, download the full brochure.

download brochure

Innovative Investment Tools

Alternatives offer investors a distinct set of attributes that are not commonly found in mainstream investments.

Hedge Fund Strategies

1

Derivatives

Derivatives are financial products with value that stems from an underlying asset or set of asset classes. These can be stocks, debt instruments or almost anything. A derivative’s value is based on an asset but ownership of a derivative doesn’t necessarily mean ownership of the asset.

2

Short-selling

When you invest using traditional investment tools, it is all about buying a share that you think will increase in value. Once it has increased in value, you will sell it for a profit. Selling short is selling something that you don’t own (but have borrowed) with the anticipation that by the time you need to return it to the lender, you would have been able to buy it for a cheaper price.

3

Leverage

Leverage uses debt to benefit from market movements.

Why Would You Choose Hedge Fund Strategies?

Managed Risk

Enhanced Returns & Added diversification

  • Increases overall stability when traditional investments underperform
  • Counteracts market risk
  • Has the flexibility and tools to complement traditional investments
  • Has the ability to generate the returns in falling market environments
Alternative investments offer flexible asset allocation - get exposure through responsible leverage. Specialist assets and/or asset classes offer:
  • Low volatility
  • High return macro strategies
  • Specialist strategies linked to specific:
    • Indices
    • Assets / stocks
    • Currencies

Innovative Investments Tools

Alternatives offer investors a distinct set of attributes that are not commonly found in mainstream investments.

1 Derivatives
Derivatives are financial products with value that stems from an underlying asset or set of asset classes. These can be stocks, debt instruments or almost anything. A derivative’s value is based on an asset but ownership of a derivative doesn’t necessarily mean ownership of the asset.
2 Short-selling
When you invest using traditional investment tools, it is all about buying a share that you think will increase in value. Once it has increased in value, you will sell it for a profit. Selling short is selling something that you don’t own (but have borrowed) with the anticipation that by the time you need to return it to the lender, you would have been able to buy it for a cheaper price.
3 Leverage
Leverage uses debt to benefit from market movements.

Managed Risk

  • Increases overall stability when traditional Investments underperform
  • Counteracts market risk
  • Has the flexibility and tools to complement traditional Investments
  • Has the ability to generate the returns In falling market environments

Enhanced Returns & Added diversification

Alternative investments offer flexible asset allocation - get exposure through responsible leverage. Specialist assets and/or asset classes offer:
  • Low volatility
  • High return macro strategies
  • Specialist strategies linked to specific:
    • Indices
    • Assets / stocks
    • Currencies

Sources of Value and Return

Different alternative investment managers, capabilities and funds use the sources of return shown in the diagram below in different ways and to different extents. What is interesting for investors is that these sources of return show the extent to which we have flexible tools to take advantage of market, industry, sector and company specific changes.

How We Can Meet Your Investment Needs

We design and blend portfolios using a broad range of alternative investment tools and strategies to cater for your specific requirements. We also offer a range of strategies that aim to capture specific sources of return and protect you against specific risks.

Fund / Capability and Objective

Investor Need

Fund Facts

Sanlam Alternative Rho Fund seeks to deliver maximum risk adjusted returns by employing diversified multiple concurrent strategies in primarily South African interest rate markets. It aims to generate active alpha by exploiting market inefficiencies and yield curve dislocations, regardless of market conditions or peer performance. The Fund seeks to achieve its investment objective by positioning in a well diversified range of different strategies and instruments, expressing views on the term structure of interest rates. For investors to benefit from changes to interest rates and fixed income exposure. Hedge the risk of income yield fluctuations and reduce the dependency of your portfolio returns on cash returns (driven by interest rates and inflation). Fund inception date:
October 2004
Strategy:
Fixed income arbitrage
Fund manager:
Johan Kurtz
Prime broker:
RMB Prime
Administrator:
Maitland
AUM:
R550 million
Open to investment:
Yes

Fund / Capability and Objective

Investor Need

Fund Facts

Sanlam Alternative Xi Fund seeks to deliver maximum risk adjusted total return (targeting STEFI+2%). The fund invests in money market instruments and exploits arbitrage opportunities in the front end of the money market interest rate curve, enhancing returns with a rated (minimum A-) credit overlay on the portfolio. Investors who wish to improve the return on short-term cash holdings with very little volatility. Fund inception date:
February 2007
Strategy:
Listed credit, A- rated and above
Fund manager:
Bruce Simpson
Administrator:
Maitland
AUM:
R300 million
Open to investment:
Yes

Fund / Capability and Objective

Investor Need

Fund Facts

The Fund endeavours to achieve disproportionate risk-adjusted returns in all market conditions. With the introduction of more stringent regulatory constraints in the banking industry, the risk appetite of banks has been significantly curtailed. This has presented a significant opportunity for non-banking institutions such as ourselves to step in to fill this void. The Fund specifically focusses on identifying opportunities in the off-market credit space. For investors who wish to enhance their returns by gaining exposure to credit opportunities in the unlisted space. Fund inception date:
July 2010
Strategy:
Off-market debt
Fund manager:
Erica Nell, Jared Abels
Administrator:
Investment Data Services Group (IDS)
AUM:
R300 million
Open to investment:
Yes

Fund / Capability and Objective

Investor Need

Fund Facts

The Sanlam Alternative Pi Fund aims to deliver consistent capital growth irrespective of market conditions. The Fund generates its returns primarily through equity based positions listed on the JSE with auxiliary positions in offshore markets. The Fund strives to generate a high level of growth in excess of the benchmark through carefully selected investments in long equities while generating additional returns through short positioning in overvalued equities that the manager anticipates will decline in value. For investors who would like exposure to equities, but with the added benefit of being able to hedge out potential losses if/when the market moves against you. Fund inception date:
1 May 2014
Strategy:
South African long/short equity
Fund manager:
Greg Bergh
Prime broker:
Peregrine Securities
Administrator:
Maitland
AUM:
R130 million
Open to investment:
Yes, but early-stage

Fund / Capability and Objective

Investor Need

Fund Facts

Our philosophy is to manage the Sanlam Alternative Omega Fund as a unified portfolio across fixed income and equities. Risks are managed for the purposes of achieving targeted return and to reduce portfolio volatility. Risk management will be the main driver of the investment decision-making process considering the multiple of risks the fund takes.

Risk attribution for each asset class will be explicitly managed at the strategy levels and at the overall portfolio levels.
For investors who would like the equivalent of a 'balanced fund' - with the risk mitigation tools that alternative investments use. This strategy is a combination of the fixed income and equity capabilities. Fund inception date:
1 July 2014
Strategy:
Multi-strategy
Fund manager:
Sithembele Manyadu and William Ofosu
Prime broker:
RMB Prime
Administrator:
Maitland
AUM:
R150 million
Open to investment:
Yes

Fund / Capability and Objective

Investor Need

Fund Facts

Seeks to leverage positive returns from the changes that weather, exchange rates, production cycles and interest rates have on soft commodity prices. For investors who wish to diversify their portfolio in a very specific way. They may wish to access the benefits of changes in the commodity market through exposure to energy, wheat, soya, maize etc. Fund inception date:
1 January 2016
Strategy:
Soft commodities trading
and arbitrage
Fund manager:
Gert van Wyk
Prime broker:
RMB Prime
Administrator:
Maitland
AUM:
R25 million
Open to investment:
Yes

How We Manage Risk

There are several risks associated with alternative investments above and beyond the typical risks associated with traditional investments.

  • Complexity
  • Liquidity
  • Actual risk exposure measurement
  • Risk control processes

We have transparent access to notional exposure metrics. These include snapshots of exposure to:

  • Counterparty credit risk
  • Asset classes
  • Instruments
  • Strategies
  • Daily returns

Our models facilitate measurement AND our models enable us to look forward for scenario testing (of expected exposures).

  • Snapshot in time risk
  • Projected risk
  • Stressed environment risk

Over and above this risk analysis, we focus on:

  • Liquidity analysis
  • Pricing analysis
  • Valuations

We manage risk limits within carefully considered parameters. Ongoing and active management is necessary because the nature of the market and contracts based on underlying assets is dynamic. We actively manage the following:

Counterparty features

  • Rating
  • Scale / Size
  • Exposure

Type of derivative exposure

  • Asset class exposure
  • Collateral limits / measures / arrangements

If need be, we can unwind positions, re-set contracts / exposures, hedge exposure, transfer positions to others to ensure that we maintain appropriate parameter-driven exposure amounts.

How to Choose an Alternative Investments Manager

  • Skills and proven track record of strategies and managers?
  • Operational platform is critical:
    • Systems
    • Checks and controls
    • Qualitative and quantitative metrics
    • Risk management and governance framework
    • Understanding of and compliance with regulatory framework
    • Alignment with investor interests from a fees point of view
    • Incentive to generate absolute returns
    • Transparency and reporting
  • Credibility
  • Independence
  • Trust
  • Scale / liquidity
  • Access to resources and research
  • Autonomy
  • Brand
  • There are a wide range of strategies
  • Different language and terminology
  • Broad and more specific categories
    • Some analyse stocks to look for mispricing
    • Some study macro trends
    • Some fund of hedge funds do research and analysis for you and combine the strategies for you
    • Long-short strategies (directional and pairing)
    • Event driven

What will complement your existing portfolio?

Is there a specific strategy that you feel will improve your asset allocation?

Why Sanlam Alternative Investments

Latest Updates 2016 *

Sanlam Alternative Rho Retail Hedge Fund

Fund ß (STeFI) ALBI a
1m 0.58% 0.58% 2.23% 0.00%
3m 3.53% 1.81% 4.77% 1.72%
6m 6.13% 3.55% 8.70% 2.58%
1y 9.77% 6.90% 6.48% 2.88%
2 yr (p.a.) 8.58% 6.60% 7.35% 1.97%
3 yr (p.a.) 9.90% 6.23% 7.31% 3.67%
5 yr (p.a.) 8.43% 5.92% 8.07% 2.51%
7 yr (p.a.) 9.23% 6.16% 8.81% 3.08%
Inception (p.a.) 10.50% 7.30% 8.65% 3.20%

Sanlam Alternative Rho Retail Hedge Fund

VaR (% of NAV) 2.00%
% Positive months 84.5%
Risk (Std dev of returns) 3.3%
Sharpe since Oct 2004 1.3
Max drawdown -4.13%

Find out more from the investment team in our latest commentary

*as at 31 July 2016

The Sanlam Alternative Rho Retail Hedge Fund (“Fund”) is managed by Sanlam Investment Management (Pty) Limited, registration number 1967/011973/07 (“SIM”). SIM is a Discretionary Financial Services Provider, licensed in terms of the provisions of the Financial Advisory and Intermediary Services Act, 2002 (FSP No 579). The Fund is a hedge fund as defined in the Notice on Codes of Conduct for Administrative and Discretionary and Discretionary FSPs Amendment Notice, 2007, published in Government Gazette Number 30228 of 29 August 2007. Neither hedge funds nor the activities of the managers of hedge funds are regulated in terms of any act, regulation, code of conduct, or practice. Accordingly, none of the consumer protection measures provided for in terms of the Financial Advisory and Intermediary Services Act, 2002 and the regulations issued thereunder are available to investors in the Fund. Investors invest in the Fund entirely at their own risk. Nothing contained in this document or any other document pertaining to the Fund should be construed by an investor or a prospective investor in the Fund as advice or representation by SIM on the suitability of an investment in the Fund for that investor or prospective investor.

The Investment Team

Bruce Simpson

CEO
BA (Economics)

William Ofosu

Hedge Fund Manager:
Multi-Stategy
BCom

Sithembele Manyadu

Hedge Fund Manager:
Multi-Stategy
Masters in Management (Finance and Investments)

Greg Bergh

Hedge Fund Manager:
Long | Short Equity
MBusSc (Finance), CFA

Bulent Badsha

Hedge Fund Manager:
Macro Opportunities
BCom

Johan Kurtz

Hedge Fund Manager:
Fixed Income
BCom (Hons)

Erica Nell

Hedge Fund Manager:
Credit
MCom, CA (SA)

Gert van Wyk

Hedge Fund Manager:
Soft Commodities
MCom (Risk Management)

Jared Abels

Hedge Fund Manager:
Credit
BCom (Hons)

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Find Out More

For detailed information on Hedge Funds, download the full brochure.

Please visit our institutional portal for articles relating to this investment strategy.

Contact us at institutional@sanlaminvestments.com / 021 950 2500.

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