Billions of US dollars are spent annually by companies that are focused on understanding the biology of aging and how lifestyle choices affect longevity. Much is written about improving longevity through healthy habits like a well-balanced diet, reducing stress, and getting enough sleep. In recent years, studies have also highlighted how mental health has a powerful influence on our physical health.
However, not enough airtime is perhaps given to the risks of living longer without the funds to provide for these years, and how money problems can affect your mental health. Some of the reasons for investors underfunding their retirement include not saving enough, not starting early enough, and not taking enough risk at a young age. However, no asset allocation limits to post-retirement savings apply, so individuals may choose to invest outside the constraints of Regulation 28. But many investors don’t review their investment choices post-retirement and remain invested in conservative Balanced Funds when perhaps they should be considering funds that are less constrained and have the flexibility to include a higher allocation to risky assets.
Longer life expectancies require more resources and more portfolio growth, and a strategic asset allocation of investments to growth assets. Better returns and capital protection increase the longevity of your portfolio. This is why hedge funds are the ideal investment for both pre- and post-retirement portfolios.
While some large South African institutions ‘get it’ and have done well in their portfolios due to the allocation to hedge funds and other alternative asset classes, the institutional and retail market remains very underinvested in hedge funds. Arguably, the best investment brains in the world run the largest endowment funds, with a significant allocation to alternative assets. The Harvard Endowment Fund, for example, allocates 39% of its endowment portfolio to private equity and another 31% to hedge funds. Public equity accounted for 11% of the asset allocation. Real estate had an allocation of 5%, bonds made up 6% of the portfolio, and cash was 5% (23 Oct 2023).
Over the last 10+ years, SA General Equity Funds have returned 7.2% per year, while SA Multi-Asset High Equity Funds delivered an average return of circa 8.0% per year—pedestrian real returns for people saving for retirement. Many hedge fund managers, on the other hand, have managed to generate significant alpha, often with similar or less risk. Take the Laurium Aggressive Long Short Prescient QI Hedge Fund (‘Aggressive Long Short’), for example. This fund, over the same period, has delivered a 14.3% return per year, double that of SA General Equity Funds after fees with similar risk to the equity market (Morningstar Direct, 31 May 2024).
Better returns increase the longevity of portfolios. In this scenario, we assume that R1,000,000 is invested on 1 Jan 2013 in the Laurium Aggressive Long Short Fund, and the same sum is invested in the average general equity fund. You then draw a monthly income of R8,000, increasing at 6% per annum. After just over 10 years (30 April 2024), you would have zero left if you had invested in the average general equity fund, but if you had invested in the Laurium Aggressive Long Short Fund, you would still have R1,792,926 invested.
The good news for retail investors is that they can now access Laurium’s Aggressive Long Short strategy via the newly launched Laurium Enhanced Growth Prescient RI Hedge Feeder Fund (‘The Fund’). The Fund largely follows the same mandate as our Aggressive Long Short Fund but is structured as a local Retail Investor Hedge Fund (‘RIHF’). RIHFs are open to all investors with the enhanced benefit of daily liquidity. The mandate differs slightly from the Aggressive Long Short in that the Fund may allocate to select international equities. This Fund is available via LISP platforms.
Disclaimer: Laurium Capital (Pty) Ltd is an authorised financial services provider (FSP 34142). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. For Laurium’s full disclaimer, please visit https://lauriumcapital.com/legal/hedge-fund-disclaimer.
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