The case for South African hedge funds: Jaclyn Petrone, Director of International Business Development, Laurium Capital

Over the years as international investors have searched for yield and found themselves looking towards Africa, many have invested with a long-term mindset focused on private and public equity strategies. Both strategies offer promising returns over the longer term, but the higher returns do not come without lack of liquidity and significant volatility.

One source of remarkably consistent alpha and attractive risk-adjusted returns has been the South African hedge fund industry. While it is true that it is difficult, if not impossible to hedge in most markets throughout Africa, this isn’t the case in South Africa. With a market capitalization of $354bn, the Johannesburg Stock Exchange (JSE) has an average daily trading volume of $1bn, according to the ICBC Standard Bank Research.

The cost to borrow in many emerging markets can be quite expensive and in most cases borrowing is impossible. This is not the case in South Africa. The cost to borrow on the JSE is approximately 50 basis point per annum and the exchange has a very liquid options market. The country’s financial infrastructure and regulatory framework ranks amongst the top globally when it comes to best practice. In fact, South Africa’s financial market development overall ranks just outside the top 10 according to the 2015-16 World Economic Forum report.

Read more: The Case For South African Hedge Funds