South African money manager Sygnia [JSE:SYG] closed all its hedge-fund products, ending a 13-year history with an investment strategy its chief executive officer now calls a ruse to pocket fees.
“Once you know that the emperor has no clothes you cannot in good conscience support what has become a management-fee racket,” Chief Executive Officer Magda Wierzycka wrote in an opinion piece in Johannesburg-based daily newspaper, Business Day.
While investors ignored the fees managers were charging during bull markets, this has changed with the onset of regulations that forced hedge funds to convert into mutual funds and adopt more transparent fee structures, Wierzycka argued. The end of quantitative easing and cheap money flowing into emerging markets has also brought a period of outflows and negative, volatile market returns, she said.
“This should be the ideal time for hedge funds to show they can finally deliver on the promise of preserving capital,” the CEO said. “The sad truth seems to be that they cannot.”
The Cape Town-based money manager, which has R181bn in assets, has now fired all its hedge fund managers and “hopefully closed a chapter on this form of investing”, she said, without saying how many staff or funds were affected, or commenting on the actual returns made by Sygnia’s hedge funds.
“After long advocating the use of hedge funds as a way of managing the downside risk of an investment strategy, I have swung 180 degrees in the other direction,” Wierzycka said.
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