Moneyweb – WHAT is the difference between say, a general equity unit trust and a hedge fund? In a recently released hedge fund report, Peregrine Securities notes that the average South African unit trust derives some 93% of its investment performance from the market. In other words, only about 7% of the performance \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u0153 both good and bad \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u0153 of your equity unit trust investment can be explained by the fund manager\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2s active bets, a result of their skill, or lack thereof.<\/p>\n
\u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cThis is no fault of the fund managers or the institutions themselves,\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d argues Peregrine Securities, \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cbut is due to the constraints imposed on them by their mandates and regulatory bodies.\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d Of course, having such a large portion of your investment linked to the market is not necessarily a bad thing. History suggests equities comfortably outperform other asset classes in the long term.<\/p>\n
The report then raises the primary distinction between these \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201clong-equity\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d funds, and hedge funds. Typically, most of the return derived from hedge funds is \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cnon market\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d (alpha). In other words, the return derived from hedge funds is mostly a result of the manager\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2s skill, or lack thereof.<\/p>\n