A new guidebook targeting Singaporean professional investors allocating to hedge funds has been published jointly by AIMA Singapore and HSBC.
The publication, entitled "The Hedge Fund Investors Handbook," takes readers through a step-by-step guide on the intricacies of hedge fund investing from an allocators perspective.
Peter Douglas, chairman of AIMA Singapore (Alternative Investment Management Association) says that although leading government institutions such as GIC and Temasek have been investing in hedge funds for a number of years, the mid sized Singaporean pension funds and institutions are only now at the stage where they will begin allocating to hedge funds, with a few already at the early stages of making allocation. Douglas estimates that there are approximately 40 such institutions in Singapore, including pension funds, endowments and corporates.
"These investors are not constrained by the availability of hedge fund investment opportunities, but are looking to develop a level of comfort with how to go about the technicalities and processes of investing in hedge fund products," says Douglas.
The handbook is published just days after headlines about significant losses at Singapore-based boutique hedge fund, Aman Capital, first hit the press. The fund is thought to have lost about one fifth of its value overnight through a Korean derivatives transaction that turned against it. The tribulations at Aman are sure to hit close to home with Singapore's investors, a harsh reminder of the risks that hedge fund investing brings with it.
Commenting on the Aman debacle Douglas says, "I don't expect the Aman case to present a significant set back for Singaporean investors. If anything, the events at Aman highlight the importance of using a fund of fund approach to diversify this type of risk. Most fund of funds invested in Aman will see minimal impact from this on their overall performance."
He adds, "Quite rightly, most Singaporean investors are taking the fund of hedge fund approach to investing, with a few cases of single manager direct investments." Douglas expects Singaporean institutions to allocate approximately 5% of their assets to hedge fund strategies over time.
Investors however, might take note of the guidebooks no nonsense approach to redemptions in times of crisis. "If something appears to be going wrong, either with the investment strategy or the organization, react quickly . . .When things start going wrong, they tend to get worse before they get better, and the hedge fund industry is Darwanian - the opposite of prosperity is not survival its extinction. Do not be left holding the baby," the handbook recommends.
Specific to the concerns of Singaporean investors, the booklet addresses the Singapore tax-related considerations related to hedge fund investing, and includes an efficient frontier analysis denominated in Singapore dollars, highlighting the effect hedge fund allocation can have on reducing portfolio volatility.
Included in the body is also a detailed start to finish checklist of issues for investors to consider, right from defining the mandate, to manager screening and due diligence, operational issues involved in investing in hedge funds, ongoing monitoring of investments and advice with regards to redemptions
The book kicks off with an introduction by Mark Anson, CIO of $185 billion US pension fund giant, CalPERS, a leading hedge fund investor. Instructive to Singaporean investors will be the parallel he draws between US pension fund experience and the GIC. Anson writes, "Public investing in the US is consistent with government investment funds in Singapore considering these types [hedge funds] of investments. GIC is the largest investor in Singapore. In a low return rate environment for stocks and bonds, government funds have felt the need to consider hedge funds to supplement their expected returns."