Before supplying you with a list of the most important hedge funds of the South East Asia region. It is important to know what a hedge fund is, how they operate, and how to find one which suits you. In this article, you will learn all of this. After, a list of hedge funds in Malaysia are supplied to give you easy access to all the different ones.
What is a Hedge Fund?
A hedge fund is an alternative way of investing. With this type of investing a pool of funds is gathered to create one fund. This fund then can adapt separate strategies which depend on the preference of the investors. It can be either very aggressive or defensive managed. Aggressive funds are aiming to have a huge return and are riskier then defensive managed hedge funds.
How Does a Hedge Fund Operate?
Hedge funds only accept qualified investors so not everyone with capital can join. Usually, this means an individual with a net worth of more than 1,000,000 USD or an income exceeding 200,000 USD for two or more consecutive years.
Another feature of it is that it is not limited to one type of investing. Hedge fund invests in a wide range of investment opportunities like real estate, the stock market, currencies, and land. This is possible due to that a hedge fund exists of private investments, therefore there are no limitations in what they can invest.
Hedge fund does not use the usual expensive ratios charged to the investor. Usually, the two and twenty fee structure is has used this consist of a 2% management fee and a 20% cut of the gains generated by the hedge fund.
It is actually used to reduce risks as pooled funds can diversify its portfolio easier. Instead of one investor investing in one investment, there are a lot of investors who are all investing together in a lot of different investments.
Pro’s and Con’s of Hedge Funds
These types of funds offer some worthwhile benefits over traditional investment funds. Some notable benefits include:
- Investment strategies that can generate positive returns in both rising and falling equity and bond markets
- The reduction of overall portfolio risk and volatility in balanced portfolios
- An increase in returns
- A variety of investment styles that provide investors with the ability to precisely customize an investment strategy
- Access to some of the world’s most talented investment managers
There are a few disadvantages as well:
- Concentrated investment strategy exposes them to potentially huge losses.
- Hedge funds tend to be much less liquid than mutual funds.
- They typically require investors to lock up money for a period of years.
- The use of leverage or borrowed money can turn what would have been a minor loss into a significant loss.
The ‘First’ Hedge Fund
A former writer and sociologist Alfred Winslow Jones’s company, A.W. Jones & Co. launched the world’s first hedge fund back in 1949. Jones was inspired to try his hand at managing money while writing an article about investment trends in 1948. He raised $100,000 (including $40,000 out of his own pocket) and tried to minimize the risk in holding long-term stock positions by short selling other stocks.
Jones also employed leverage to enhance returns. In 1952, he altered the structure of his investment vehicle, converting it from a general partnership to a limited partnership and adding a 20% incentive fee as compensation for the managing partner.
As the first money manager to combine short selling, the use of leverage shared risk through a partnership with other investors and a compensation system based on investment performance, Jones earned his place in investing history as the father of the hedge fund.
The Difference Between a Hedge Fund and a VC
Hedge funds and VC‘s are similar as they both are funds that manage the money of investors. The differences can be seen when looking at the type of investment they make. VC’s invest usually in growing companies in return for a part of private equity, the amount depending on the valuation of the company.
Hedge funds are also pooled funds managed by investors, the managing party of the fund usually also invest in the fund to ensure that the priorities of the investors and the managing party are aligned. This is in a venture capital firm not always the case. Another difference is that as mentioned before hedge funds have the ability to invest in a lot of different categories from stock to real estate. VC’s only invest in growing companies while hedge funds usually invest in stocks.
How To Find a Hedge Fund
During the research for a list of most important hedge funds in SEA, it became very clear that hedge funds are hard to be found. That is why we have made a list of the most important ones and not all of them in this region.
The top reason why these funds are difficult to find is that their goal is not to have a well-known name. Hedge funds are exclusive and most investors get invited to join rather than seeking out to find a fund to join. Therefore, most do not have a website of any sort or any other social media to gain traction of visitors.
Due to these reasons, only the best performing hedge funds are known, that is why we decided that for this article it would be most useful to only use the best performing funds of SEA.
How to Find One That Suits You
To find a hedge fund that suits you as an investor you should keep in mind what is important to you, a high return or a steady one? Many investors look at the returns of the past five to ten years. None the less for most investors this is not enough they analyze some KPI of this type of funda they are interested in.
For start-ups looking to get funded by a hedge fund, this is rather hard to seek out. To get one to invest in start-ups is not easy as described before they do not only invest in start-ups, they invest in very diverse investments. The most used method is getting in touch with these funds either online or through a networking session.
List of Most Important Hedge Funds of SEA
Vanda Global Fund
This fund is run by Chong Chin Eai, Vanda Global Fun was the best operating fund of its kind in 2019. In this year they gained over a whopping 300%.
PruLev Global Macro Fund
This is run by Norman Tang Meng Biao and companion August Li Jin Hui. They are well known for their global portfolio which is believed to be one of the driving factors of their success.
Graticule Asset Management Asia
This fund has been one of the larger ones for quite some while now. They have managed to open up offices in Singapore, New York, San Fransisco and London. This was all due to there incredible track record.
Dymon Asia Capital
This fund has been founded in 2008, within eight years in 2016 they had managed to get a place in the top 50 hedge fund list created by Bloomberg. Since they have continued on growing.
AR Capital Private Ltd
This fund was founded in Singapore in 2012, by Leong Wah Kheong who has had more than 30 years experience in investing. They’re focused on having between 30-50 stocks in their portfolio to have a steady growth.
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Why Singaporean Hedge Funds Succeed
The first theory suggests that success is due to the large amount of capital some wealthy Asians have. This gives them the ability to invest in risky investment as they can afford to lose the capital. Besides this, there is a lot of capital coming into Singapore, which enables hedge funds to invest way more and in a more diversified portfolio. Lastly, hedge funds in Singapore are run by small teams. Some are even operated by a single person with one desk and one computer. In other words, the cost to run such funds is minimal.
The second theory that Singaporeans are very internationally focused. Their own stock market used to be very volatile which enabled hedge funds to invest in rather risky but high-rewarding investments. Now that their own stock market has been stabilizing, they are seeking foreign investment to reenact what they have previously down, resulting in huge returns of these funds.
The last theory is that they have been lucky, this is least likely as two of the top ten performing hedge funds are located in Singapore. It could, however, be that these funds in Singapore are copying each other resulting in similar margins of return.
Find out More About NEXEA Venture Capital
The Bottom Line
A hedge fund is an official partnership of investors who pool money together to be guided by professional management firms—just like mutual funds. But that’s where the similarities end. These funds aren’t regulated as much and operate with far less disclosure. They pursue more flexible and risky strategies in the hopes of netting big gains for investors, which, in turn, result in big profits for fund managers. But perhaps what sets them apart from mutual funds the most is that they have much higher minimum investment requirements.
The majority of these fund investors are accredited, meaning they earn very high incomes and have existing net worths in excess of $1 million. For this reason, hedge funds have earned the dubious reputation of being a speculative luxury for the rich.