Leveraging Hedge Funds for Medical Schemes: A Path to Enhanced Returns
This presentation by Theron van Wyk, Managing Director of TriAlpha Investment Management, explores the relevance of hedge funds as an investment avenue for medical schemes, particularly in the context of rising medical inflation outpacing general economic growth. Analyzing the evolving hedge fund industry in South Africa, van Wyk outlines how, if selected judiciously, hedge funds can provide a competitive advantage in returns without disproportionately increasing risk. The insights shared at the BHF Southern African Conference invite medical schemes to consider innovative investment strategies.
Leveraging Hedge Funds for Medical Schemes: A Path to Enhanced Returns
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Presentation Transcript
Squaring the Circle • Medical Schemes: Investing in a new asset class • Theron van Wyk, Managing Director • TriAlpha Investment Management (Pty) Ltd • 24th July 2007 The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Contents the Circle • Introduction to the Hedge Fund Industry • How relevant are Hedge Funds for Medical Schemes? The BHF Southern African Conference 22-25 July’07 Sun City
Squaring What are Hedge Funds? the Circle Traditional Investments (e.g. equities, bonds) Hedge Funds Investment Objective Absolute Real Return Outperform a market benchmark Primary Source of Returns Market Based Manager Skill Investment Constraints Flexible Long Only Manager Compensation Based on AUM & Performance Based on AUM Fundamentally different The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Growth of Emerging Markets Hedge Fund Industry the Circle Source: Hedgefund.net The BHF Southern African Conference 22-25 July’07 Sun City
Growth of South African Hedge Fund Industry the Circle The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Contents the Circle • Introduction to the Hedge Fund Industry • How relevant are Hedge Funds for Medical Schemes? The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Conundrum for Medical Schemes the Circle • Medical inflation has exceeded general inflation • Due to nature of liabilities a significant portion of assets are held in cash-related assets • Returns on most cash-related assets are not competitive in inflation-adjusted terms The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Can Hedge Funds assist in addressing this challenge? the Circle NO • If Hedge Fund is part of volatile/risky section of Hedge Fund universe • If it is a single strategy Hedge Fund • If the liquidity is too low YES • If Hedge Fund is part of low risk/”cash enhancers” part of hedge fund universe • If it is a multi-strategy Fund of Hedge Funds • If the liquidity good The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Generic Profile of ideal Hedge Fund solution the Circle Performance • Cash + 2% over any rolling 12 months (net of fees) Risk • Annualised volatility of 50% of ALBI volatility • Maximum drawdown 5% The BHF Southern African Conference 22-25 July’07 Sun City
Squaring South African Regulation the Circle • Hedge Funds are structured in various ways • Degree to which a Medical Scheme can invest depends on structure • Most common structure for local fund of hedge funds: Unlisted Debenture • In this case up to 5% of assets can be invested Extract from Annexure B of Reg.30 of the Medical Schemes Act The BHF Southern African Conference 22-25 July’07 Sun City
Squaring Conclusion the Circle • Hedge Fund industry well established and used by institutions internationally • SA Hedge Fund industry, although newer, following global growth path • Right type of Hedge Fund can be an additional tool for Medical Schemes to enhance cash returns without significantly increasing portfolio risk The BHF Southern African Conference 22-25 July’07 Sun City
