In the first formal step toward hedge fund regulation in South Africa, National Treasury has published a s63 declaration under the Collective Investment Schemes Control Act, 2002 (CISCA). Investment funds conducting the business of a hedge fund will, from 1 April 2015, become collective investment schemes (CIS) and will be regulated by CISCA. Hedge funds are broadly defined under the declaration and are not limited to any particular type of structure or vehicle. It is likely therefore that most existing South African hedge funds, whether formed as trusts, commanditarian partnerships or otherwise, are caught.
The declaration sets out content requirements for hedge fund founding documents, including requirements in relation to valuations and liquidity. These are in line with industry practice though and it is likely that most existing unregulated hedge funds will comply.
The declaration requires hedge fund managers to lodge an application for registration as a manager of a scheme in accordance with s42 of the act by 31 August 2015.
Certain sections of CISCA do not apply to hedge funds, including the 10% borrowing limit under s96. Sections 68 to 72 of CISCA, which require a CIS manager to appoint a registered trustee or custodian, will apply to the extent determined by the CIS Registrar.
This is a significant and long anticipated development for the industry, and it eliminates much of the uncertainty as to the legal status of domestic hedge funds. There is still some uncertainty, however, on a number of implementation issues. In particular, the draft regulations for hedge funds which were published for comment by National Treasury and the Financial Services Board in April 2014, have still not been finalised.