Despite a 10.8% growth in South Africa's CIS industry, local investors remain cautious, preferring diversification over growth assets as the market evolves.
Image: Picture: Henk Kruger/Independent Newspapers
The South African Collective Investment Schemes (CIS) industry ended 2024 with assets under management totalling R3.87 trillion, reflecting a 10.8% growth from R3.49 trillion in December 2023, according to the Association for Savings and Investment South Africa (Asisa).
According to the group, this growth was largely fuelled by a strong stock market performance, with the JSE All Share Index delivering a 13.4% return over the 12 months to December 31, 2024.
Sunette Mulder, senior policy adviser at the Association for Savings and Investment South Africa (Asisa), highlights that assets under management have grown by a staggering 42%, or R1.14 trillion, in four years, up from R2.73 trillion at the end of 2020. This means that the local CIS industry is now almost half the size of South Africa’s economy, which the Reserve Bank valued at R7.35 trillion in annualised market prices at the end of the third quarter of 2024.
Despite these positive developments, local investors remained hesitant about committing to CIS portfolios. According to ASISA’s latest CIS industry statistics for the year ended December 2024, CIS management companies recorded net outflows of R35.25 billion, with South African Equity General portfolios suffering the most, shedding R11.95 billion.
Mulder says that existing investors reinvested income declarations, such as dividends and interest, worth R121.07 billion in 2024. This resulted in the industry ending the year with net inflows of R85.82 billion. Interest-bearing portfolios were the primary beneficiaries, attracting R42.31 billion, with SA Interest Bearing Short Term, SA Interest Bearing Variable Term, and SA Interest Bearing Money Market portfolios drawing significant inflows.
According to Mulder, while global investors tend to favour equity portfolios—where 48% of all international CIS assets are allocated—South African investors appear to prefer diversification. At the close of 2024, nearly half (49.9%) of all local CIS assets were held in SA Multi Asset portfolios, 30.5% in SA Interest Bearing portfolios, and only 18.3% in SA Equity portfolios.
Mulder says the range of investment choices available to South Africans continues to expand. At the end of 2024, investors had access to 1,878 local CIS portfolios. On a global scale, according to the International Investment Funds Association (IIFA), there were 143,035 CIS portfolios worldwide, managing total assets of $75.0 trillion as of September 2024.
Mulder acknowledges that South Africans have endured a tough economic environment in recent years but warns against assuming that past trends will dictate the future, especially with interest rates now declining. The Reserve Bank lowered the prime lending rate by 0.25% in both September and November 2024.
“Investors have been avoiding growth assets for several years, likely because high interest rates made fixed-income returns comparable to general equity portfolios. However, equity portfolios typically outperform other asset classes in the long term. Investment growth comes from time in the market, not from trying to time the market,” she says.
Mulder believes that, in hindsight, 2024 may be seen as a turning point for South Africa, particularly for growth assets. “While global political uncertainty remains a concern, we’ve witnessed green shoots emerging in South Africa. A stable inflation rate, lower interest rates, the introduction of the two-pot retirement system, an uninterrupted electricity supply, a peaceful transition to a Government of National Unity, and efforts to reverse South Africa’s greylisting have all contributed to renewed optimism.”
Offshore investment remains a popular choice for South African investors. Locally registered foreign portfolios had R975 billion in assets under management by the end of 2024, reflecting a 14.1% rise from R855 billion in 2023. However, these portfolios experienced net outflows of R5.46 billion, she says.
Foreign currency unit trust portfolios, denominated in currencies like the dollar, pound, euro, and yen, are only marketed to South Africans if registered with the Financial Sector Conduct Authority (FSCA). Investors using these portfolios must adhere to Reserve Bank regulations and use their foreign capital allowance. By the end of 2024, South Africans could access 727 foreign currency-denominated portfolios.
Meanwhile, the South African hedge fund industry had a record-breaking 2024, achieving double-digit net inflows for the first time. Asisa’s annual hedge fund statistics reveal that assets under management grew by 34% to R185.12 billion, excluding funds of funds. This capital was spread across 221 hedge funds managed by 12 investment companies.
Hayden Reinders, convenor of the Asisa Hedge Funds Standing Committee, reports that hedge funds attracted net inflows of R13.31 billion in 2024, more than doubling the R6.24 billion recorded in 2023. In 2022, net inflows were R4.54 billion.
Retail investors contributed the bulk of these net inflows, signalling increased confidence in hedge funds as a means of mitigating market volatility. “We are celebrating 10 years of hedge funds as a regulated investment product in 2025. It is encouraging to see retail investors embracing hedge funds as valuable building blocks alongside unit trusts,” Reinders says.
South Africa was the first country in the world to implement comprehensive hedge fund regulations in 2015. These regulations classify hedge funds into two categories: Retail Hedge Funds and Qualified Investor Hedge Funds. Both fall under the Collective Investment Schemes Control Act (CISCA), ensuring investor protection.
Meanwhile, strong hedge fund performance, enhanced accessibility, and marketing efforts have contributed to a surge in retail interest. Retail Hedge Funds attracted net inflows of R11.84 billion in 2024, whereas Qualified Investor Hedge Funds experienced net outflows of R70 million.
Hedge funds are categorised based on investment strategy. In 2024, Long Short Equity Hedge Funds were the most popular, with retail investors contributing R6.16 billion in net inflows and qualified investors adding R479.01 million. Multi-Strategy Hedge Funds followed, attracting R3.96 billion in retail inflows and R7.21 million from qualified investors. Fixed Income Hedge Funds drew R1.72 billion from retail investors but saw net outflows of R535.15 million from qualified investors.
Looking ahead to 2025, Reinders hopes the positive trend in retail hedge fund investment will continue into 2025, but he expects muted inflows into Qualified Investor Hedge Funds until the National Treasury clarifies the tax treatment of collective investment schemes, including hedge funds.
“This tax review is crucial for the hedge fund industry. It could also enable the Financial Sector Conduct Authority to revisit Board Notice 90, which currently prevents long-only unit trusts from investing in hedge funds despite their regulation under CISCA,” he explains.