Records Tumble In Best Year Yet For South Africa’s Hedge Fund Industry

South Africa’s hedge fund industry closed out 2024 with its strongest performance to date, according to the latest Novare Hedge Fund Survey. Assets under management (AUM) soared 43% year-on-year to reach a record R152.7 billion, cementing the industry’s place as a fast-growing pillar of the local investment landscape.

The surge in assets marked the fastest growth rate since Novare began tracking the industry 20 years ago. The R45.9 billion increase in AUM is larger than the entire industry’s size before 2013, underscoring the momentum behind hedge funds in South Africa.

Growth was fuelled by R24.1 billion in net inflows from investors and R20.9 billion in performance gains. Hedge funds benefitted from strong performances in equities, bonds, and multi-strategy funds, with investors increasingly drawn to their ability to deliver absolute returns and downside protection.

“Last year was a significant year for South African hedge funds,” said Ola Lepile, CEO of Novare Holdings. “Hedge funds are finally starting to earn their place in investors’ portfolios as they consistently prove their value.”

Retail investors closing the gap

Of the 152 hedge funds surveyed across 64 managers, Qualified Investor Funds (QIFs) still dominate with R78.98 billion, or 51.7% of total AUM. But Retail Investor Funds (RIFs) are rapidly catching up, managing R72.06 billion, or 47.2% of the market, up from 42.9% in 2023.

Retail funds recorded around R19 billion in net inflows, boosted by strong performance gains of R7.5 billion. While QIFs attracted R3.5 billion in net inflows, their strategies generated an estimated R13 billion in performance gains.

QIFs retain more flexibility to deploy complex and less liquid strategies, allowing managers to target niche opportunities. But the gap is narrowing, as more than 70 hedge funds now provide daily pricing and broader retail access through LISPs and Discretionary Fund Managers.

Strategy shifts and standout performers

Growth was widespread across strategies, though some categories pulled ahead. Multi-strategy funds, which diversify across approaches to reduce risk, grew 84% to R21.3 billion. Equity Long/Short – Long Bias strategies remain the largest segment at R66.7 billion, up 39%. Equity Market Neutral strategies rose 52%, while Fixed Income funds increased 28%.

Short Bias funds, designed to profit in falling markets, surged 243%. Although still small in absolute terms, one standout performer drove most of these gains.

Concentration and performance trends

The industry remains concentrated at the top. The 10 largest managers now oversee R105 billion, or 69% of total assets, up from 65% last year. Larger managers captured most inflows, with firms above R2 billion in AUM accounting for 87% of net new capital.

Interestingly, mid-sized managers outperformed, with funds managing between R500 million and R1 billion delivering an average return of 21.3%.

Fee models under pressure

Fee structures are slowly evolving as investor scrutiny rises. While the traditional “2 and 20” model persists, some funds are experimenting with reduced management fees or performance-only structures that better align incentives with client outcomes.

Transformation lags behind

Transformation remains uneven. Of the 64 managers surveyed, just over half disclosed their B-BBEE status. Among these, 32% achieved Level 1, while another 32% were non-compliant. White professionals still dominate senior management at 66.1%, and men account for nearly three-quarters of leadership positions.

Looking ahead

Industry insiders expect education, access, and innovation to drive the next phase of growth. Digital platforms are helping broaden investor participation, while calls for clearer regulation and tax treatment continue. AI-driven strategies and adaptive multi-strategy products are also attracting growing attention.

“The hedge fund industry is maturing,” said Kwazi Mbhele, Hedge Fund Portfolio Manager. “With greater transparency, stronger platforms, and a shift in investor mindset, hedge funds are no longer niche – they’re becoming a core part of South African investment portfolios.”