I was at gathering on Tuesday night by Phillip Capital, who presented on their Hedge Fund offerings (by the MAN Group PLC). The MAN group is the largest Hedge Fund in the world, and is essentially a manager of Hedge Funds (they supervise many different hedge funds which are then put together in a single basket for investors). This is a very interesting arrangement, as MAN gets to then distribute the risk and volatility of their fund performance across many different hedge fund managers. Thus, when a single hedge fund among the portfolio is affected (e.g. Amaranth), the net effect on the entire fund is negligible. Cool.....No wonder their funds have been averaging returns of 13%-16% per annum. This makes hedge funds extremely suitable for investors who have a 5-10 year horizon, for they can compound (like mad!) during this period in the currency of their choice. This could be applicable for a family planning on sending their children for education. And the best thing about the MAN hedge funds for those of you who are risk averse? It's CAPITAL GUARANTEED.
Hedge Funds are also vehicles which go after ABSOLUTE returns (vs. RELATIVE returns). As was explained by the dudes from MAN, they typically make less than other funds (e.g. mutual funds) in a market bull run, but they usually still make a return when the market goes down. It goes without saying that throughout the overall life of the fund, the Hedge Fund trumps mutual funds easily. Unfortunately, the average hedge fund is not accessible to the man on the street. Their clients are usually institutional investors and high net worth individuals. All in all, it was very informative session on investing.
I also got two tips about FOREX. The first is why my stops keep getting blown out the water on the USD/CAD pair (I finally know why and an experiment today confirmed what was going on!). Another aspect was looking at MAN's composition of their portfolio. Guess what the largest asset class was? CURRENCIES! This was almost a quarter of their portfolio. So if you haven't got currencies in your portfolio, you're REALLY MISSING something!
In the meantime, our investors' infatuation with Call Warrants show no signs of abating. The Public Bank Call Warrants were listed today (reference price RM0.36 with a strike price of RM9 and a conversion ratio of 2-to-1). They ended their maiden day at RM1.17. What does that mean in simple layman terms. The Call Warrants are WAY OUT THE MONEY as their conversion ratio would imply a share of RM11.34 for Public Bank (RM9 + RM1.17x2). So unless Public Bank starts moving soon, a lot of people may get burned - like 100% burned. And maybe that's where the smart money is, just waiting on the sidelines getting ready to pounce!
Till next time.
Chief Shook
Wednesday, February 7, 2007
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