Know Of A Good Bond Hedge Fund ?

What will we do without ex bosses ? Especially the ones whom we are fond of, and I can only count 1 or 2 in my entire career. For in the ruthless grind of the financial market machinery, there is only room in most hearts for the bottom-line and those profits that count to the down payment for that next house or car. Who would even pause for a moment to remember the person they owe their skills and expertise to ? The one who had plucked them out of obscurity to impart the knowledge to them that others now envy them for ?

Not many a big time trader would admit they had help from someone at the beginning or who gave them their first lucky break ? Except for those solemn moments at those funeral wakes that increases in frequency as years pass and from the number of wakes we come to learn that financial market folks do not typically live longer than the average person.

I had needed more help than others at the start, having flunked finance in school and justifying it with a vow never to work in the financial markets. A vow quickly forgotten when I laid eyes on that offer letter that promised, what I interpreted, as a 6-8 month holiday in London. A holiday quickly forgotten 2 years later when the new boss comes along and one has to price an amortising bond on excel – long form, as a test of one’s capabilities which was then judged to be on ground zero.

Those bosses are gems and remain gems in our lives as, 15 years later, one seeks refuge away from the bustle of the CBD in his little hedge fund office, secreted away in a shophouse within walking distance where ex-staff are welcomed to hide out during the lunch hour.

Let’s call him Boss, for he will always be our boss, not just to me but the small platoon of traders he invested a greater part of his youth on, for we have only come to realise of late that he was less than 35 when he assumed leadership of the motley crew and turned traders out of all of them. My only other great teacher passed off 3 years ago, aged 53, on her own legendary terms but that is a story for another day.

Running a credit hedge fund is not an easy job, fighting to make its own in Singapore where credit – corporate bonds is not exactly every investors cup of tea and bonds are a relatively new thing to the retail investor, most of whom only started bond investments about 5-6 years ago (post Lehman) when banks decided to market bonds in earnest after their credibilities were blown to bits with the high margin derivative products that were previously marketed. Bonds have turned out to be even higher margin these days than equities as mark ups as high as 2-3% are tolerated in the hazy and nontransparent OTC marketplace where there is no central exchange for price discovery.

Besides, nobody looks at credit only hedge funds in the glamourous world of hedge fund rock stars ruled by the David Tepper’s, Bill Ackman’s and legends like Soros. Singapore has her share of hedge fund celebrities and boasts of Asia’s top performing funds last year – Quantedge, a macro fund. Macro is the key for most of the hedge funds these days, giving fund managers the free hand to go with the flow in Asia, rather than sticking to a single strategy.

That is perhaps why Boss has a small fund, by industry standards, and not the billion dollars that those macro funds boast of. He does not market a whole lot because it is expensive for his current investors and he prefers to deal with personal recommendations.

Making The Case For Hedge Funds

The main difference between a hedge fund and a mutual fund is in the manager. Mutual funds are almost always indexed-based which means the managers are restricted to a stricter investment mandate and not allowed to stray too far off the index they are tracking. The hedge fund manager, thus, can be said to have more skill than an average portfolio manager although that may not always be the case because we have people like Bill Gross, the former bond king.

It was always a trader’s dream to be recruited by a hedge fund, the very people they battle daily in the markets whose calls I still have nightmares about after these years, going for your jugular on an off day. Of course, I never harboured those ambitions being limited on my resume, although not in my expertise, on my small repertoire of products and area of specialisation.

Mutual funds win hands down as we have US$ 21.75 trillion (excluding pension funds), on the last count, invested in them globally, as hedge funds trail behind with only 553 billion as ETFs grow to US$ 2.9 trillion. Mutual funds are up 21.83% on the past year against the hedge fund industry average of just 4.9%. It looks even worse for 2015.

 

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