We have been considering launching a hedge fund for some time. This is because we have been frustrated with the various FCA rules for NURS/UCITS which limit the investment freedoms of fund managers and thus reduce the potential investment returns.
We researched hedge funds in the Cayman Islands and found the costs associated with setting up and running such funds prohibitively expensive unless such a fund could be initiated with at least £20m-£30m.
We then investigated the Jersey equivalent of a hedge fund known as a Jersey Private Fund, JPF, which really attracted us for a while. Fees to set up and run a JPF are cheaper than for a hedge fund but still pretty expensive.
Eventually we discovered QIS.
A Qualified Investor Scheme (a QIS) is a form of Alternative Investment Fund (AIF) which has wider investment powers, and is subject to lighter regulation, than other AIFs. Investment in a QIS is only open to sophisticated investors, typically institutional investors, corporate bodies and experienced individuals.
The cost to set up and run a QIS is much lower than for a hedge fund or a Jersey Private Fund yet its rules are very similar. It means we are able to continue using our existing Authorised Corporate Director (ACD), Carvetian Capital Management Limited, and in turn their Fund administrator, Yealand to this new fund.
Subject to FCA approval, we expect to be able to launch our QIS fund within the next six months.
The minimum investment will be £250,000. It will be available for institutions and sophisticated/high net worth individuals who will need to certify their status in order to receive the prospectus and any further information on the fund.
The proposed objective of our QIS, subject to FCA approval will be to invest in the 10 companies we believe have the greatest prospect of growing in value at least 100 times. In other words we will be investing in companies that are potential 100 baggers. Such companies will need to meet our strict investment criteria which are as follows;
1. You have to look for them.
2. Growth, growth and more growth.
3. Lower multiples preferred.
4. Economic moats are a necessity.
5. Smaller companies preferred.
6. Owner-operators preferred.
7. You need time: use the coffee-can approach.
8. You need a really good filter.
9. Luck helps.
10 .You should be a reluctant seller.
This list has been unashamedly borrowed from Chris Mayer’s book 100 Baggers.
The principle of this investment approach is that you buy great companies and hold them long term, very long term, unless and until they no longer fulfil the above 10 criteria. In other words until they are no longer great companies. Harder said than done. Why? Because it is extraordinarily difficult to keep the faith and remain invested when the great company you invested in goes through a very bad spell of stock market underperformance and inexplicably falls in value by, say, 50%. As long as you remain convinced it is still a great business you must not sell. Period.
Patience and maintaining a long term view are prerequisites of such an investment strategy. As the legendary Warren Buffet once said “The stock market is a device for transferring money from the impatient to the patient.”* You know it makes sense.
*This blog is based on my own observations and opinions.
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change
