Well, unlike many mainstream mutual funds that simply buy stocks and have their investors' holdings merely track the stock market's returns and roller-coaster along with the economy, my fund is an absolute return fund which aims is to achieve capital appreciation regardless of stock market conditions or the state of the world economy. I do that by taking long, short and non-directional positions in futures and options in the fixed income, currency, commodity and equity indices complex. In short, my fund follows a Global Macro investment strategy and the portfolio is pretty large and well diversified. You can find it on my website, darylchiaruiming.blogspot.com.
1. Returns:
After 4 years of managing my FICC portfolio, I finally decided to keep a proper record of my returns starting Jan 2010, and in 2010 I achieved a 48% return on investment with a Sharpe Ratio of 1.46 (extremely high by the standards of professional managers). The return profile was incredibly smooth too - I only had 1 losing month out of 12. As of today, 21 April 2011, I am up 13.65% year to date, and am on track to meeting my 2011 target returns of 20-ought percent this year.
Equally important as the magnitude of returns is the correlation of returns with respect to the general stock market. Many a times, retail investors are heavily weighted in stocks and property. Most, unfortunately, only learn about the importance of diversification the hard way when a recession strikes. Diversification plays a central role in in risk mitigation and my fund plays a part in a retail investor's portfolio by acting as a portfolio diversifier. It invests across all asset classes - currencies, commodities, rates, equity indices - that span across the globe, offering absolute returns with low (sometimes even negative) correlation to stock prices, general economic conditions and most of all, local property values. Still, of course, high potential returns only comes with significant risk.
2. Risk:
In order to keep track of and put a cap on my risk exposure, I use a conservative statistical Value at Risk (VaR) model while ensuring that the portfolio can handle large market stress events. The VaR model is conservative in a sense that I assume perfect correlation between the my portfolio positions, and by that I mean that I ensure that I will be able to take the hit when all of my positions goes against me in the worst possible manner all at once - an extremely unlikely scenario. Using this model, the position limits I set and amount of risk I take allow the portfolio to fall 25% yet be still able to have enough equity to take advantage of the adverse moves against my portfolio. So far in the past 5 years, my fund has experienced and recovered from draw downs - losses from peak to trough - of up to 25% at the very worst. A large loss of significantly greater than 25% is possible though, and as improbable as it is, you should still be sure that you will be able to stomach losses of such magnitude. Again, such big losses did not occur even through the global financial crisis, but it is important to always be prepared for the worst.
Hence, the amount you invest in the fund should not be too large relative to the size of your current portfolio, income and net-worth, and the capital invested must be risk capital which you can afford to lose somewhat are able to set aside for the long run.
3. My advice:
Whether you already hold a diversified portfolio of stocks and bonds or are just putting your cash under your bed, my advice is to invest only a 'small' portion of your personal funds / net worth - perhaps 25% for yourself, since you're still in the capital accumulation phase of life, and not more than 3 to 5% for your dad, since he should be taking on less risk as retirement approaches. These funds should also be considered 'risk capital' - money that you can afford to not just set aside for the long term to ride out the ups and downs, but also suffer significant losses (25%+) on without affecting your financial position drastically.
4. Performance Bonus:
I've recently abolished the front end investment fee on my fund for all investors past and present such that the only fee is the 20% performance bonus, which I am considering revising downwards (and to be applied retroactively) in the future. Since this is a friends' find, it just makes me happy that I don't charge market rates. The 20% performance bonus involves keeping the first 20% of profits made each quarter, subject to a high watermark (i.e. only if the fund is higher than it was at the end of the previous quarter).
Unlike at many hedge funds (of which the managers aren't your friends), I the majority of the $146,000 in this fund and $662,000 of assets under management are my personal and family's funds, and hence you can expect that I will be prudent in managing the portfolio, and not take on risks just so that I can earn more performance bonus. This is one huge plus point apart from my track record!
5. How it'll work:
Simple! Since this is a friends' fund I am proud to say that I maintain zero legal fees. Also, you will be able to invest and liquidate any time you want to. That's right, any time, and you will receive your funds within a week tops. Furthermore, there is not minimum investment period, though I suggest that as a long term investment, you aim to stay invested for at least a year. Also, I suggest you invest a minimum of $1,000 - my minimum investment amount. As for the maximum, the sky is the limit, and I have friends offering me 5 to 30, even 50 times the minimum, but really, how much you decide to invest will depend on where you are with reference to retirement age, your risk appetite and the size of your current portfolio / savings. I will discuss that with you in depth when you decide to invest.
Once I have received and invested your funds, I will send you the number of shares in my fund which you own and the price (NAV) you paid for each share. After that, finding the value of your holdings is simply multiplying shares by the most recent NAV.
Daryl
| |||||||||||||||||||||||||||||||||||||||
0 comments:
Post a Comment