Founded in June 2002 by Heiko van Wyngaarden, an active investor for two and a half decades and a pioneer of hedge fund investment strategies as a prop desk trader at FirstCorp Merchant Bank, Oryx Investment Management is one of the largest privately-owned hedge fund managers in South Africa, with around USD300m in assets under management in four onshore and offshore long/short funds.
Oryx manages three offshore funds denominated in US dollars and domiciled in the British Virgin Islands: the Optis Southern Africa Fund and the Optis Global Opportunities Fund, both launched in May 2003, and the Optis Africa fund, launched in August last year, which focuses on African equities outside the Johannesburg Stock Exchange. The fourth fund is the onshore flagship Oryx SA Fund, launched in October 2004 and denominated in rands.
The Oryx SA and Optis Southern Africa funds both focus on the South African market and are almost identical in investment policy, except that the Optis fund is hedged back into dollars and sometimes invests through markets outside South Africa where equities are dual-listed. The Optis Africa Fund also mainly invests through international exchanges.
All the funds currently have a long focus and an emphasis on value stocks, but with hedging against potential downside movement. This strategy has been highly successful, with both the Oryx and Optis South Africa funds achieving annualised returns of about 40 per cent a year, and the firm has won a series of awards from local hedge fund research providers.
The South African hedge fund market may still be relatively small, but it has enjoyed explosive growth in recent years, rising from barely more than USD7bn in late 2005 to as much as ZAR30bn today. The potential of the industry for future growth is illustrated by the fact that it is much smaller by comparison with the long-only investment industry than the hedge fund sectors in the US or UK.
One factor that has probably constrained the industry’s growth is lack of regulation. Up to now investment managers only needed to be registered with the Financial Services Board, although from the end of February the regulator is introducing higher requirements for fund managers in terms of their investment experience. In addition, because hedge funds may not market themselves to individuals or institutions, there is a lack of knowledge in the marketplace.
Most interest comes from funds of funds based in South Africa, a handful of family offices and from well-informed high net worth individuals who understand the risks involved in hedge fund investing. By contrast, the Optis offshore funds have as investors family offices and funds of hedge funds from London and Switzerland, and there is increasing interest from the US and Asia for African and South African-focused hedge funds.
The recent market turmoil has had its impact on South Africa as elsewhere, especially for small- and mid-cap stocks, but short-term turbulence aside, the future looks bright for South Africa’s hedge fund industry, which is starting to gain critical mass and at the same time benefit from greater exposure both at home and abroad. The South Africa story is gaining ground as international investors look for the next China. This is the last under-invested continent, and South Africa is the perfect place to play Africa from.
Barry Shamley is head of trading and Gavin Butcher is head of research at Oryx Investment Management