Do you want to know more about Hedge funds in Kenya? Well, read on to find out. Hedge funds are an investment pool contributed by a limited number of investors.
The funds are operated by professional managers who maximises on the returns while minimising the risks.
Depending on the nature of the funds, they are only open to qualified investors, institutions or the fund managers themselves.
For instance, hedge fund managers pitch a strategy to investors, and those who buy in expect the manager to stick to the said strategy.
This strategy can involve being a hedge fund that is precisely long or short on all their stock. Mostly, the funds can range from common shares to patents.
The funds are structured as either a Limited partnership (LP) or a Limited Liability Company (LLC).
An LP is a structure wherein the partners are only liable for the amount of money they invest. At the same time, an LLC is a corporate structure where investors can’t be held individually responsible for the company’s liabilities.
Typically, all funds have a common goal. They aim at a market direction neutrality. They collectively try to make money despite the market trends fluctuating up or down.
Ordinarily, fund managers often act more like traders.
Structure of Hedge Funds in Kenya
Hedge funds are structured as below
- They are only available to accredited investors with a net worth of $1 million or have an annual income of $200,000 per year.
- The funds have public investments that include stocks, bonds and mutual funds. They can as well invest in real estate, food, currency, art, or whatever the fund’s goals can meet their targets.
- They frequently leverage other funds like borrowed money to attempt to increase returns.
- The hedge funds have a “2 and 20” manger compensation scheme that gives the hedge fund manager 2% of the assets and an incentive fee of 20% of the profit every year.
Read also: Unit Trusts In Kenya: Investment Guide 2019
Types of Hedge funds in Kenya
We have four collective hedge funds in Kenya, which include:
Macro Hedge Funds
Macro hedge funds invest in stocks, bonds, futures, options and currencies.
Their main goal is to maximise changes in the macroeconomic variables. For instance, global trade, interest rates and policies.
2. Equity Hedge Funds
The fund, also known as short /long equities. They attempt to hedge against declines in equity markets.
The fund invests in stocks and stock indices and later short them if they are overvalued.
Typically, fund managers invest in undervalued stocks and then split up investment between investing in large stocks while shorting other stocks.
3. Relative Value Arbitrage Funds
Relative-value arbitrage is an investment strategy that seeks to take advantage of price differentials between related financial instruments.
For example stocks and bonds, by simultaneously buying and selling the different securities while allowing investors to profit from the relative value of the two securities potentially
4. Distressed Hedge Funds
These funds help companies fix themselves around by reinvesting in some of the securities like bonds that have lost value due to financial instability within the company with hopes that they will appreciate.
In some cases, distressed hedge funds are used to buy cheap bonds if there is a possibility that they will appreciate soon.
However, such bonds are very risky for a company. The company’s stock or bonds have no surety to appreciate.
Companies that Invest in Hedge Funds in Kenya
These are among the few companies that invest in Hedge funds in Kenya.
1. Amana Capital
Amana Capital is licensed and regulated by the Capital markets Authority (CMA).
The company offers financial assistance to pensions and investments platforms on behalf of institutions. They also provide Unit trusts products targeted at investors with a large number of resources.
2. Fanisi Capital
This is a Norwegian Investment Fund for Developing Countries (Norfund).
The firm targets industries that have consistently posted profits in Agriculture, healthcare, and energy. They offer financial services to firms whose funding starts from $1 million (sh.103 million).
3. Richmind Investment
Richmind Investments is a Kenyan based hedge-fund company and a leading investor in the world’s financial markets.
It is a highly trained Hedge Fund Manager with the Most Talented Money Managers in Kenya.
Operating for over half a decade now. The company sorts to deliver market-leading investment returns to capital partners, including pension funds, endowments, foundations, hospitals, governments, sovereign wealth funds, and private individuals.
4. Savannah Fund
Savannah Fund is a seed capital fund specialising in US$25,000-US$500,000 investments in early-stage high growth technology for web and mobile startups in sub-Saharan Africa.
5. Sterling Capital
Sterling capital s l is a Ksh2 Billion hedge fund. It launched in Kenya April this year. It mostly targets to invest in SMEs sector that is need of funding solutions locally.
Other investments of the company include the introduction of derivatives on the Nairobi Securities Exchange (NSE). This, in return, allows the fund to make bets on movements of prices of assets such as stocks.