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| GROUP
CHIEF EXECUTIVE'S REPORT (continued) |
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| Specialised
Funds |
Specialised Funds' income, which consists of management
and performance fees derived from the management of third party
capital in the group's hedge funds, and investment returns generated
from Brait's own seed capital, increased by 18% to US$6,5 million
from US$5,5 million the prior year. Operating earnings increased
by 8% to US$1,3 million from US$1,2 million in 2005.
The focus for Specialised Funds, during 2006, was on building
capacity, and increasing funds under management. Realised revenue
and earnings for the year, despite an 8% increase in earnings
over 2005, significantly understate the future potential of
this business segment. Indeed, this year was characterised by
an exponential increase in assets under management in the Brait
Funds of Hedge Funds, of almost 700% from ZAR403,7 million to
ZAR3,1 billion at year-end. A large portion of these funds were
committed in the latter half of the financial year. The timing
of these large inflows, combined with the group's policy of
not recognising performance fees until 31 December of each year,
means the business will only benefit from the fee revenue associated
with this new scale of assets under management in the next financial
year. |
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| Segmental profit from operations |
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With ZAR3,1 billion of assets largely invested
in its funds of hedge funds and in emerging fund opportunities,
and Brait's foresight in securing nearly ZAR3,1 billion of additional
capacity, Brait has firmly established itself as the leading
Fund of Hedge Fund manager in South Africa. Brait's fund of
hedge funds have been designed to appeal to institutional investors
as a high yielding, low risk investment alternative to cash
and bonds, and have attracted funds from four of the top ten
pension funds, by size, in the country. Brait Absolute has a
four-year track record of producing cash plus 6% with a correlation
and beta to the ALSI of 0,33 and 0,06 respectively, and has
recorded 44 consecutive months of positive returns. It should
be noted that assets under management, plus commitments, have
already exceeded ZAR4,1 billion since year-end.
We believe that Specialised Funds is well positioned within
a market that is increasingly understanding of, and receptive
to, hedge funds as an alternative asset class. As investors
look to rebalance their portfolios, following the strong gains
experienced in equities in recent years, we expect continued
significant asset growth in the funds of hedge funds in 2007,
particularly as investors look for more defensive investment
strategies should market uncertainty and volatility persist
into 2007.
During the course of the next financial year, Specialised Funds
will launch a multi-strategy fund which will utilise a dynamic
risk allocation process across multiple investment disciplines.
This fund will exhibit risk and return parameters that differentiate
it from the current Brait fund of hedge fund products. |
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