Sygnia has been praised for its announcement regarding the extirpation of hedge funds from client portfolios. But surely one needs to ask why Sygnia, whose core ethos is low cost transparent products, has been so opaque in this process?
The simple inference is that Sygnia’s removal of hedge funds is on account of their relative underperformance and aggressive fee structures.
But what has been the true cost to investors and why has this not been disclosed?
Sygnia’s Skeleton Life range, its primary asset base for pension, provident and annuity funds, has up until CEO Magda Wierzycka’s announcement had a 10% holding of domestic hedge funds. These hedge funds were not purchased directly but through a Sygnia-controlled fund of hedge fund vehicle. The hedge fund managers chosen by Sygnia were not disclosed, nor their fee structures. Sygnia cites proprietary information for the lack of disclosure, reasonable in a competitive industry.
But what grounds did Sygnia have to charge performance fees on the performance of the fund of hedge fund vehicle? In other words, investors were charged twice on performance, once by the underlying manager and again by Sygnia. More strikingly, the performance fee charged by Sygnia was on all positive performance, subject to the achievement of a CPI+5 hurdle. This is against the industry standard of charging performance fees only on excess performance above a benchmark.
Jordin Borer, Johannesburg