Do you want to learn more about hedge funds in Kenya? Continue reading to discover out.
What are hedge funds?
Hedge funds are pooled securities that trade in a variety of relatively liquid assets and are able to employ more sophisticated trading, portfolio construction, and risk management strategies, such as short selling, leverage, and derivatives, in an effort to increase performance.
The funds are administered by expert managers who maximize the profits while minimizing the dangers. Depending on the nature of the fund, eligible investors, institutions, or fund managers themselves may be able to participate.
For example, hedge fund managers present a plan to investors, and those who invest expect the manager to follow through on that strategy.
This technique may entail becoming a hedge fund that is exactly long or short on all of its stock. The funds can range from ordinary stock to patents. The funds are organized as a Limited Partnership (LP) or a Limited Liability Company (LLC) (LLC).
An LP is a business form in which the partners are only liable for the amount of money invested. At the same time, an LLC is a corporate form in which stockholders are not personally liable for the company’s liabilities.
In most cases, all funds share a common aim. They strive for market direction neutrality. They all attempt to make money, regardless of whether the market is up or down.
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Typically, fund managers behave more like traders.
Kenyan Hedge Fund Structure
Hedge funds are organized as follows.
– They are only available to accredited investors with a $1 million net worth or a $200,000 yearly income.
-Public investments in the funds include equities, bonds, and mutual funds. They can also invest in real estate, food, currency, art, or anything else that will help the fund fulfill its objectives.
-They frequently use other funds, such as borrowed money, to try to boost returns.
-The hedge funds have a “2 and 20” manager compensation system, which provides the hedge fund manager with 2% of the assets and a 20% incentive fee on profits each year.
Types of Hedge Funds in Kenya
In Kenya, we have four collective hedge funds, which are as follows:
1. Global Hedge Funds
Macro hedge funds make long-term investments in stocks, bonds, futures, options, and currencies.
Their primary objective is to maximize changes in macroeconomic variables. Consider global trade, interest rates, and policy.
2. Equity Hedge Funds
The fund is also known as a short/long equity fund. They try to protect themselves from equities market drops.
The fund invests in equities and stock indices before selling them short if they are overvalued.
Typically, fund managers invest in inexpensive companies before dividing their investments between huge stocks and shorting other equities.
3. Arbitrage Funds Based on Relative Value
Relative-value arbitrage is a trading strategy that aims to profit from price differences between linked financial products.
For example, stocks and bonds can be purchased and sold at the same time, allowing investors to profit from the relative value of the two instruments.
4. Troubled Hedge Funds
These funds assist corporations in turning their fortunes around by reinvesting in securities such as bonds that have lost value owing to financial instability inside the company in the expectation that they will appreciate.
In some circumstances, distressed hedge funds are utilized to purchase cheap bonds with the expectation that they will appreciate soon. Such bonds, however, are extremely dangerous for a corporation. There is no guarantee that the company’s shares or bonds will appreciate.
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Companies that Invest in Hedge Funds in Kenya
These are some of the few companies in Kenya that invest in hedge funds.
1. Amana Capital
The Capital Markets Authority licenses and regulates Amana Capital (CMA).
On behalf of institutions, the company provides financial assistance to pensions and investing platforms. They also offer unit trust products aimed at investors with a wide range of resources.
2. Fanisi Capital
This is a Norwegian Developing Country Investment Fund (Norfund).
Agriculture, healthcare, and energy are three businesses that have routinely posted profits. They provide financial services to businesses with a minimum funding of $1 million (sh.103 million).
3. Richmind Investment
Richmind Investments is a Kenyan-based hedge fund that is a major investor in global financial markets.
It is a highly skilled Hedge Fund Manager with some of Kenya’s most talented money managers.
It has been in operation for almost a decade. The firm seeks to provide market-leading investment returns to its capital partners, who include pension funds, endowments, foundations, hospitals, governments, sovereign wealth funds, and private people.
4. Savannah Fund
Savannah Fund is a seed capital fund that invests between $25,000 and $500,000 in early-stage high-growth technology for web and mobile firms in Sub-Saharan Africa.
5. Sterling Capital
Sterling Capital SL is a hedge fund worth Ksh2 billion. It debuted in Kenya in April 2020. It primarily seeks to invest in the SME sector, which is in desperate need of finance solutions on a local level.
The company’s other investments include the listing of derivatives on the Nairobi Securities Exchange (NSE). This, in turn, allows the fund to speculate on price movements of assets such as stocks.
