Mutual Fund referred to in the Cayman Fund Law means a partnership, company or unit trust established in the Cayman Islands. A mutual fund is an investment vehicle that combines many investors into a collective investment scheme, typically in stocks, bonds, money market instruments and other financial assets. A mutual fund can be a public or private fund. In this article, I'll point out some key differences between the two types of funds.
Public Mutual Funds
Public mutual funds, or public funds, are, as their name suggests, open to public investment. They are managed by professional fund managers who invest in a variety of securities, either passively (such as index funds) or actively (such as stock funds) to achieve the stated goal of a mutual fund, which is to grow capital or income. In Hong Kong, publicly offered funds and their fund managers are required to be registered, recognised and regulated by the SFC. Publicly offered funds can be index funds, net long equity funds, bond funds, or money market funds. Because these funds can only buy specified securities and cannot sell them short, and because they are subject to other restrictions, their performance is usually in line with the broader market.
Private Mutual Funds
A private fund is an exclusive investment with a limited number of investors and is open only to designated investors, such as those who have professional investor status under the Hong Kong Securities and Futures Commission regulations. There are three main types of private funds:
1) Private Equity Fund
2) Hedge Fund
3) Fund of Funds
In Hong Kong, the majority of hedge funds are established in the Cayman Islands or the British Virgin Islands, especially the Cayman Islands. The main reason is that they have lower tax requirements and have many years of experience in fund operations and regulation. Before CRS (Common Reporting Standard), the Cayman Islands was basically a haven for private equity funds, and Cayman funds were the first choice for many investors and fund managers, including those from China. The Cayman Islands, for example, does not have value-added tax itself, so funds set up in the Cayman Islands are not subject to any tax until now. The minimum investment of private funds is much higher than that of public funds, so the clients are usually high value-added clients or institutional investors. While the funds are not sold to the public, they are structured to meet regulatory requirements. Private funds tend to be more leveraged than public funds. While some equity hedge funds use derivatives, short selling of stocks and other financial products to help the fund achieve the highest returns. Simply put, if not stated in the PPM, a hedge fund can invest in any asset with the goal of achieving high returns. Many years ago, my fund bought a stake in a publicly traded company that had filed for bankruptcy at a very low price, betting that the company would be rescued by the government. Because of this, if the fund manager can structure the investment effectively, the return will be better than that of the relevant index, and it will not be constrained by the performance of the index.
If you are wealthy enough to invest in a private fund, one of the main benefits is that there is relatively little regulation. Less regulation brings greater investment risk, but also generate greater return on investment. When the investment market enters a bear market, hedge funds are also an alternative investment option.
Mr. Felix Kwok
Chief Operating Officer of Amber Hill Group
Mr. Felix Kwok has more than 20 years of management and operation experience in the financial industry and has served as a senior executive in various asset management companies, including CLSA Asset Management Limited and UBS Asset Management (Hong Kong) Limited.
Amber Hill Group is a fast-growing global investment firm dedicated to providing personal financial planning to high net worth clients around the world. The core quantitative trading systems created by the Group have performed well, and the assets under management of the Group's subsidiaries and affiliated companies exceed US $1,000,000,000.
