Blue Chip Issue 85

BLUE
CHIP
HEDGE FUNDS
Is there still a
place for Hedge
Funds and
why should FPs
be interested
in them?
Bateleur Capital1 was founded 18 years ago
in 2004 as a fund management company. In
January 2005 we launched our first hedge
fund with R11-million in invested capital.
The reason we opted for a hedge fund as our initial
investment offering was twofold – firstly, the
overriding objective was to protect investor capital
and the hedge fund structure was the most suitable
vehicle to achieve this; and secondly, the flexibility afforded by
a hedge fund meant we were largely unconstrained in terms
of our investment opportunity set.
Since inception in January 2005, the Bateleur Long Short
Fund2 has exceeded its investment objectives. The fund has
compounded at 14.6%3 per annum net of all fees, well ahead
of the JSE All Share Index total return of 13.3% before fees. To
put this into context, R1-million invested in the Bateleur Long
Short Fund in 2005 is worth R11.1-million today.
Importantly, these returns were generated at significantly
lower levels of volatility than the overall equity market. The
Bateleur Long Short Fund‘s volatility has averaged 7.8%4 since
inception compared to 17.7% for the JSE All Share Index. The
fund’s worst single calendar year was during the financial crisis
in 2008 when it declined 4.8%. In the same year, the JSE All
Share Index fell 23.2%. Although Bateleur Capital has over time
expanded its product offering beyond hedge funds and now
directly manages more than R9-billion of assets across flexible,
long only and global mandates, the attractiveness of hedge
funds as an investment vehicle is more relevant and compelling
today than back in 2005. Some of these reasons include:
Capital preservation
If managed according to their strict definition, hedge funds
are designed to protect capital. This can be achieved in many
ways, but the most common approach for equity hedge funds
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