THE DETERMINATION ON THE REQUIREMENTS FOR HEDGE FUNDS
Board Notice 52 of 2015 (BN 52) deals with the Determination on the Requirements for Hedge Funds. It was issued under the Collective Investment Schemes Control Act on 6 March 2015.
A tiered approach is adopted by the Determination, with the establishment of two types of hedge funds; one for retail investors and the other for qualified investors. The two types of hedge funds will be regulated differently, with the Retail Hedge Funds (RHF) regulated more strictly than the Qualified Investor Hedge Funds (QIHF).
A Qualified Investor is defined as “any person, who invests a minimum investment amount of R1 million per hedge fund, and who- (a) has demonstrable knowledge and experience in financial and business matters which would enable the investor to assess the merits and risks of a hedge fund investment; or (b) has appointed a FSP who has demonstrable knowledge and experience to advise the investor regarding the merits and risks of a hedge fund investment.”
A QIHF is defined as “a hedge fund in which only qualified investors may invest”, while a RHF is defined as “a hedge fund in which any investor may invest”.
A “manager” is defined as a manager of a QI fund or a retail hedge fund, whichever may be applicable, while a “hedge fund FSP” is defined as an authorised hedge fund FSP as defined in the Code of Conduct for Discretionary Financial Services Providers published under the FAIS Act.
With regard to QIHF, the Determination deals with the specific duties applicable to a manager of a QI Fund, leverage, liquidity and repurchases.
With regard to RHF, the Determination deals with liquidity and repurchases, fees, counterparty-exposure, collateral, permitted assets and securities, non-permitted asset classes, derivatives, financial indices, exposure and monthly reporting to the Registrar.
There are also general provisions applicable to all hedge funds. These provisions deal with permitted structures, collateral, platforms and hosting arrangements, fund administration, prime broker, counterparties, valuation and pricing, remuneration and reward policy, risk management, risk management policy and risk manager, execution, short-selling, disclosure and reporting to investors, annual reports and quarterly reporting to the Registrar.
The transitional arrangements provide that a manager of a hedge fund in existence at the date of commencement of BN 52 must comply with the provisions of BN 52 within 12 months after registration as a manager, subject to any additional conditions imposed by the Registrar, and any other manager must comply fully with the provisions of BN 52 from date of registration.
Where a manager of a hedge fund in existence at the date of commencement of BN 52 wishes to apply for registration of that fund as a QI fund, the current investors in the hedge fund are deemed to be qualified investors, and to comply with the requirements for a qualified investor set out in BN 52; provided that any investor subscribing to the fund after the commencement date must be fully compliant with the requirement for qualified investors.
BN 52 comes into force on 1 April 2015.
A more comprehensive discussion of BN 52 will follow in due course.
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