Understanding Hedge Funds

One often hears that hedge funds are unregulated in South Africa. While this is true as regards direct regulation, anyone looking at establishing a hedge fund in South Africa or investing into such a fund should be aware that a fund will need to navigate a raft of complicated South African legislation.

Indeed, a number of hedge fund structures historically used in the South African market (such as variations of the en-commandite partnership structure with undisclosed, limited liability partners and certain trust structures) may constitute illegal, unregistered collective investment schemes, and may in any event be highly inefficient investment vehicles in light of the introduction of capital gains tax. Notwithstanding the changes brought about by the Collective Investment Schemes Control Act (CISCA) in 2002, which significantly broadened the range of structures regarded as collective investment schemes, a number of the historical structures continue to operate in the South African