A record 33 hedge funds were launched in South Africa in the year to end-June and there is room to grow the burgeoning industry, a survey said on Tuesday.
Total assets under hedge fund management grew by almost 70 percent to 25.9 billion rand excluding money in unit trusts that use leverage, Novare Investments said in its 2007 report.
Carla de Waal, a portfolio manager at Novare, said the expansion continued a trend started in the late 1990s when South Africa's first batch of hedge funds was launched.
But the boom really took off after a sharp fall in the local stock market in 2000/01, as investors sought to shield themselves from those losses, she said.
"Estimated capacity left in open funds has escalated to more than 30 billion rand. As a result, managers believe there is scope to at least double the size of the industry," De Waal said.
The share of hedge fund assets in equities eased to 72 percent in the period surveyed from 74 percent. Multi-strategy funds grew assets to 14 percent from 7,6 percent.
The report found that a growing number of established asset managers had launched new hedge funds, breaking from the past where former employees of these firms set up their own funds.
It found an increase in those which outsourced administration at around 78 percent, reflecting a high level of self-regulation in line with global practices.
"Further peace of mind comes from the fact that funds of funds remain the largest investors in hedge funds," she said.
"They make up almost 60 percent of assets, which takes care of most of the monitoring and compliance checking functions that are so crucial to an industry that is moving towards increased government regulation
  One of the hottest topics, when Wall Street recently saw a market turmoil, was whether hedge funds need to be more strictly regulated. As a special investment vehicle designed for large institutions and rich personal investors, hedge funds are notorious for their ruthless trading strategies aiming to reap as high absolute returns as possible, which usually came with very high risks. The financial leverages hedge funds often utilize had more or less contributed to almost every financial crisis we have faced in the last decades. Typical examples include the fall of Long Term Capital Management (LTCM) in late 1990s and its recent counterpart Amaranth in 2006.

  Therefore, the world has recently seen a desire to put more strict regulations to curb hedge funds by most countries. This was well manifested by what was happening in Germany, which had already started a series of legislatorial moves “against” hedge fund. As Peer Steinbröck, the Finance Minister of Germany commented during G7 meeting of 2007, “any mistakes in the hedge funds’ calculations may well trigger off a vicious circle which will have negative implications similar, or even worse, than the financial crises we saw in the 1990s. There have been similar moves taken by Steinbröck’s counterparts in the States. For example Connecticut's attorney general, Richard Blumenthal, said after the fall of Amaranth, which lost 6 of its 9 billion assets in less than a week during Sept. 2006, "The facts about mammoth losses by Amaranth offer additional powerful and compelling evidence about the need to reform disclosure and oversight requirements for funds
In this article, we will briefly review how hedge funds are currently regulated and what problems they have brought to the financial market. At the end, we will argue that based on what we have seen in the past collapses of hedge funds, restricting their operations by more harsh regulations might not be a good idea.
Every hedge fund is regulated by the Security Act of 1933 since it is considered as a security. The difference of a hedge fund from another common security is that it usually registers itself under Regulation D as a “private placement”. This is the key different of a hedge fund from a mutual fund or a company publicly offered stock. Thus a hedge fund cannot be advised or offered to the general public. It is, by nature, a game for rich investors.