Page 154 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 8

Real Estate
The Real Estate category has only one General sector. Currently there are funds in three
categories at the geographic level, meaning that there are effectively three sectors: Global Real
Estate, Regional Real Estate and South African Real Estate.
Real Estate – General Funds invest in listed property shares, including real estate investment
trusts (REITs) and other collective investment schemes in property. The objective of these funds is
to provide high levels of income and long-term capital appreciation. These portfolios invest at least
80% of the market value of the portfolio in shares listed in the FTSE/JSE Real Estate industry group
or similar sector of an international stock exchange and may include other high yielding securities
from time to time. Up to 10% of a portfolio may be invested in shares outside the defined sectors in
companies that conduct similar business activities as those in the defined sectors. The ASISA
benchmark for South African funds is the FTSE/JSE SA Listed Property index (J253T).
Hedge Funds
Hedge funds are a popular form of
collective investment scheme in most
developed countries. Hedge funds typically use
leveraged strategies, including net short
positions, to make profits. These strategies,
which often involve derivatives (such as
futures and options) mean that a hedge fund
can suffer losses greater than its aggregate
market value. Most hedge funds are structured
in such a way, however, that investors are
protected from losses that exceed their capital
investment.
A well-run hedge fund should, in theory,
be less risky than an equity fund. A key
feature of hedge funds is that they are the
only mainstream investment vehicles able to generate positive returns when markets are falling.
Globally, the hedge fund industry is a force to be reckoned with. There are well over one hundred
thousand investment funds available worldwide–of thesenearlyone in tenisahedgefund.
According to ASISA statistics, the SA hedge funds industry ended 2020 with assets under
management of R73.27 billion, a 6.3% improvement over 2019 in spite of net outflows of R2.45
billion over the period. The total number of regulated hedge fund products was 233 at the end of
December 2020.

Regulations Governing Hedge Funds
In South Africa, hedge funds have been an unofficial part of the collective investments
landscape for many years. It is only recently, however, that hedge funds have been pulled under the
umbrella of CISCA (the Collective Investment Schemes Control Act). Up until 2015 hedge fund
managers were licensed and regulated by the FSCA in terms of FAIS but not under CISCA. They
contractually agreed the terms of investment with their investment. Under the new rules many
conditions of investment are regulated and cannot be varied by the manager. These include
repurchase obligations, valuation and pricing requirements, and disclosure and reporting
requirements.
Hedge funds were officially classified as collective investment schemes from 1 April 2015
(Government Notice 141 of 2015). Established hedge funds that accepted money from the public
had until the end of September 2015 to lodge applications for registration with the FSCA. An
amendment to existing regulations has created a new investment scheme category for hedge funds.
This means that the rules governing hedge funds are not always the same as those which apply to
unit trusts.

152 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts