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Former hedge fund boss’s returns questioned

Update: *responses from Momentum and the JSE MAP.

JOHANNESBURG – On the face of it, former hedge fund boss Herman Pretorius and his company, Abante, have delivered excellent returns for his investors – in the region of 20% a year for the past five years. This would rank him among the top money managers in the country.

Pretorius has an unknown number of relatively wealthy private investors. Those known to Moneyweb are typically from small farming towns such as Moorreesburg, Porterville, Hopefield, Malmesbury, Durbanville, Riversdale and Sasolburg.

But two financial advisers – whose clients have money invested with Pretorius – have asked whether his returns can be verified.

One financial adviser wrote to Moneyweb: “There are a number of red flags that go up for me with regards to Abante but nobody (as far as I know) has really scratched around.”

One of the biggest concerns for this adviser was the consistency of the investment performance. “Their performance is just too consistent. I am not aware of a single negative quarter for this fund. They seem to average anything from 20-30% per annum every year. Even through the global financial crisis.”

The investment, called Relative Value Arbitrage Fund (RVAF), also does not have the type of safeguards that apply to most hedge funds.

Pretorius is not licensed with the FSB and claims he is not required to do so. What’s more, the statements issued to investors are basic in the extreme. An example (with the investor’s personal details removed) can be viewed or downloaded here.

Pretorius’s investment structure would not be so unusual if it comprised family members or business partners. But the investors known to Moneyweb are relatively unsophisticated investors who rely on financial advisers for advice.  

Pretorius is quite well known in business and hedge fund circles. He was involved in the listing of Wesizwe and remains an investor in the junior platinum company. Pretorius’s name can be found in the Wesizwe pre-listing statement, where it is disclosed that he earned a broking fee of 10% selling shares to his private clients.

Pretorius was also involved with a hedge fund called Abante Statistical Arbitrage. In 2008 this fund won an award for its performance.

Moneyweb asked Pretorius for further details on Relative Value Arbitrage. He invited this journalist to visit him in Cape Town at his expense. I accepted.

Pretorius says that his clients are invested in listed shares, and that their funds are managed by Polus Capital.

Polus Capital used to be known as Abante Capital but changed its name in May 2010 to avoid confusion with other Abante entities.

Polus Capital is registered with the Financial Services Board and manages money for some institutional clients, including Momentum, its biggest investor.

Pretorius is an indirect shareholder in Polus through an entity called Pinion Equities.

Polus director Heinrich Muller tells Moneyweb that Polus Capital manages funds for various large institutions and clients.

Says Muller: “One of the clients is a trust of which Mr Pretorius is a trustee. I understand the trust to be a closed entity and is basically like an investment club with a fixed amount of trustees. The trustees of the trust are verified by us on an annual basis in terms of the requirements of the FAIS and FICA acts.”

Critically, Muller says he does not know whether this trust is linked to Pretorius’s Relative Value Arbitrage Fund.

“We have no ownership or control nor insight into the RVAF nor do we have any ownership, control or insight into the trust that we manage funds for of which Mr Pretorius is a trustee.”

Muller said it was impossible to confirm whether Polus could have achieved the high returns achieved by Pretorius’s RVAF.

Pretorius tells Moneyweb that he has not solicited any new investments in the past few years. He adds that investors are welcome to withdraw their funds, and that he would actually welcome this because it would give him time to pursue other business interests, which include several private-equity ventures.

At the time of writing Pretorius had not responded to questions asking the number of private investors in RVAF and the total amount invested.

*After the above article was published, Moneyweb received the following responses from Momentum and the JSE‘s Nautilus Managed Account Platform (JSE MAP). 

These responses are published below. 

Momentum’s response:

Following an article published in Moneyweb on the 14 June 2012 by Julius Cobbett, titled “Former hedge fund boss’s returns questioned”, Momentum Alternative Investments can allay any concerns our investors may have in relation to the investment by Momentum’s Fund of Hedge Funds in the Polus Statistical Arbitrage Fund managed by Polus Capital.

Polus Capital was previously known as Abante Capital until May 2010, when the hedge fund business separated from Abante Capital and its private equity business. Polus Capital is registered with the Financial Services Board as an authorised financial services provider and is managed by Heinrich Muller and Steven Becker. Polus Capital’s relationship with the Abante Relative Value Arbitrage Fund (referred to in the article) is limited to Herman Pretorius’ indirect shareholding in Polus Capital, and any funds that Polus Capital may manage on behalf of Pretorius and his clients.

All hedge fund investments made by Momentum Alternative Investments are strictly through the JSE’s Nautilus Managed Account Platform (JSE MAP). The JSE MAP has appointed Polus Capital as trading advisors to the Polus Statistical Arbitrage Fund segregated account. The assets of the segregated account remain under control and custody of the JSE MAP, and there is no co-mingling of assets of the segregated account with that of the Abante Relative Value Arbitrage Fund.

The JSE MAP ensures not only separation of assets, but also independent valuations and pricing. Momentum Alternative Investments has full daily transparency and monthly liquidity on the account, with no lock-up periods or other restrictions in subscription and redemption which may apply to the Abante Relative Value Arbitrage Fund. Momentum Alternative Investments has chosen to take hedge fund exposure exclusively through the JSE MAP and this scenario illustrates the security of the assets and peace of mind it affords investors.

Regards

Kris Adams

Portfolio Manager

 

JSE MAP’s response

Good morning Julius,

In response to the article we would like to state the following facts:

Nautilus Managed Account Platform has had the Polus Statistical Arbitrage Fund (referred to in your article as the Abante Statistical Arbitrage Fund) on our platform since our inception in 2007 and it is through this platform that Momentum Alternative Investments  invests in the Polus Statistical Arbitrage Fund.

Nautilus Managed Account Platform can confirm for investors invested via the Nautilus MAP that independent valuation and mandate compliance has taken place on the fund since it was launched in November 2007.  These returns have been independently audited. 

The Nautilus MAP performs an operational due diligence on hedge fund managers prior to them being allowed on the platform.  We ensure that they have the necessary FSB licence to manage a hedge fund portfolio (namely a Category IIA licence).  Through our structure we legally segregate the assets from the fund manager and own the legal relationships with the administrators and prime brokers.  At no stage does the fund manager have any influence on the valuation of the portfolio and our reports are sent directly to the investors in the portfolio.  As such it is important that the comments made in the referring article should not taint the returns that the segregated Polus Statistical Arbitrage Fund on Nautilus MAP has enjoyed.

Thanks

Alexia Kobusch

Nautilus MAP

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