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South African Hedge Fund Rules Proposed by National Treasury

South Africa’s treasury and the Financial Services Board have proposed hedge fund regulations aimed at protecting investors and promoting financial stability.

So-called restricted hedge funds, which are limited to qualified investors, and retail hedge funds “will be subject to some common regulatory standards, like registering and reporting, to ensure transparency and the effective monitoring of any systemic risk build-up,” the Pretoria-based regulators said in an e-mailed statement today. “To manage risks, funds will need to have a risk-management program which sets out the types of derivatives the fund will use, the risks associated with the derivatives and how those will be managed.”

The South African hedge fund industry is estimated at 31 billion rand ($3.7 billion), compared with $2 trillion globally, according to the regulators. While the conduct of hedge fund managers in South Africa is already regulated through the Financial Advisory and Intermediary Services Act, hedge funds aren’t yet regulated.

“The regulations will be helpful from an investor point of view,” Arno Lawrenz, chief investment officer at Cape Town’s Atlantic Asset Management, said by telephone today. “It is onerous to get a license in South Africa, but rightfully so because there have been far too many scams,” he said. The proposed rules were created in conjunction with the industry and the document will allow fund managers to check that there are no unintended consequences as a result of legislation, he said.

Regulators have given industry until Nov. 15 to comment.

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