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Dear
client, |
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23 September
2013, |
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What is
happening with KFHF (Kanaan Fund of Hedge Funds) and what is its
potential? |
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Important
Paragraphs to note - 1, 5, 6 and 8. |
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1.
Two of the six
underlying funds in our KFHF (Kanaan Fund of Hedge Funds) use fixed income
strategies and aim to make profit by correctly predicting the “yielded curve”
(the difference between the short-term and the long-term bond yield) of mainly
government bonds and take positions accordingly. Unfortunately these two funds,
Kadd Capital and Brait , had 2 very poor months, which caused KFHF to return
-6.14% for May and -6.91% for June. The reason for the poor performances of the
two mentioned funds, is because of the American reserve bank’s unexpected
announcement, during the end of April, that after 5 years, since the 2008 Credit
Crash Crunch and the “quantitative easing”, they are finally seeing signs of
growth in the American economy. |
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2.
Quantitative
Easing entails the bailing out of big companies that were on the verge of
bankruptcy, because of their huge debt build-up during 2008, by granting further
debt against very low interest rates and to make more money, at low interest
rates, available to the U.S economy at a rate of $85 billion a month. This
method of “Quantitative Easing” is criticised by most leading economists world
wide as a method that will take much longer to restore the economy and that it
would have been much better to just let the mentioned companies collapse. The
argument is that Governments should not interfere with the free market. They
should leave it to the normal forces of supply and demand, to sort out
imbalances or over valuated situations via a correction, recession or even a
depression to revaluate the market. According to certain renowned economists,
over the past 200 years history has shown that although very painful, when the
market had been left to itself, it had recovered much
sooner. |
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3.
The intervention
of a government, like in the case of quantitative easing, is socialistic, of
which the most extreme form is communism, which has proved to be a great failure
over the past 90 years. |
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4.
A Majority of
economists around the world believe that the U.S economy as well as other first
world economies, such as Europe, will slowly start to grow again, but by no
means fast enough that the so-called “quantitative easing” can be ended as soon
as this year. |
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5.
Kadd Capital and
Brait are indeed two excellent hedge funds, which have contributed to the profit
of KFHF in the last few years and we have little doubt that they will, just as
in the past, make a comeback. |
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6.
According to the
attached factsheet of KFHF (Pg.1, Par.10), as mentioned previously, you will see
a similar fall in value of the fund during May and June 2006, but the fund ended
that year, Ytd (Year to date), with 25.22%. An investor who withdrew his money
by the end of June 2006 would have lost 11.49% as well as the 25.22% that he
could have earned by the end of 2006. |
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7.
Normally we
would not sell good funds like Kadd Capital and Brait, as we have seen in the
past how they can make a comeback. KFHF did very well over the years though,
which has attracted pensioners to invest in KFHF, who are withdrawing their
regular income from the fund. These investors are dependent on their income and
can’t buy and hold, therefore funds like Kadd Capital and Brait that has big
draw downs, even though they have always recovered, have been disadvantaging
these pensioners. We have thus already sold Briat and Kadd Capital’s month
notice is running until the end of September 2013. Kadd however is showing
growth of 6.8% up to the 12th of September. We hope that Kadd will
maintain this growth to the end of the month, which will assist KFHF to have a
good month (Pg.2 letter from Kevin Pretorius of Kadd
Capital). |
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8.
Attached here to
(Pg.3) is the performance schedule of the underlying funds
of KFHF, which includes the funds replacing Kadd Capital and Brait, namely Blue
Alpha Polar Star (representing 11% of KFHF), Kaizen Strategic Opportunities
(10%) and 36One (5%). You will see that Blue Alpha ended 2012 with 23%, Kaizen
with 34.4% and 36One with 25%. |
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9.
The volatility
of these funds may seem big, but as we include hedge funds with diverse
strategies, it is very unlikely that the rhythm of their volatility will
synchronise and the relative low standard deviation since inception 2.69 (see
Pg.1 Par 7 of the factsheet) should be
maintained. |
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Friendly
greetings, |
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Andre
Delport |
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