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15 April 2014
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Kanaan Asset Managers

Kanaan Trust, IT676/97, the underlying entity is an authorized financial services provider, FSP 528.

What is High-Risk Funds?

April 2014

Maybe we should first try to answer the question, "What is investment risk?" According to the well-known professor Martin Biggs (who already predicted the Credit Crunch Crash of 2008 during 2005), there is no asset class on earth that is without risk, not even the money in your savings account. Even at a very low interest rate, it is not without risk. Your bank can go bankrupt overnight, as did happen to Bearings Bank (the oldest bank in the UK) 15 years ago. Inflation can accelerate to more than a million percent in a very short period and the money in your savings account will be worth less than the paper it is written on. This happened in Zimbabwe during 2009 when inflation escalated to more than 1 000 000 % over a period of less than 12 months.

If every mentionable asset class has huge potential risk, where shall we invest?

We can compare all the thousands of asset classes and sub-asset classes to all the thousands of medicines in a pharmacy. Medicine that may save one person from certain death may be certain death to the next person. If you give Smarties to a person that is in serious need of medication for high blood pressure, the application of Smarties may cause the death of that person. Not because Smarties in itself caused the person's death, but the belief that Smarties would cure the person and replacing the correct medication with the Smarties, indirectly made it dangerous.

To use medicine without knowing or reading up on how to apply it and what the medicine intends to do for you, could be very dangerous. Similarly, to buy investments without the necessary knowledge can be dangerous. We are not talking about illegal medicine and illegal drugs which are not approved by the pharmaceutical industry. Similarly, we are not talking about illegal investments such as pyramid schemes which are not approved by the financial services board. Legal medicine and legal investments for the wrong person and purpose can be dangerous.

Should we remove all the potential dangerous medicine like blood pressure medication and hedge funds from the shelves? Definitely Not!

Where a proper need analyses is done for a client (as when a doctor makes a proper diagnosis for a patient, prescribing the appropriate medicine), the authorised financial advisor should advise the appropriate portfolio of investments based on the need analyses.

Appropriate advice on a client's portfolio would usually include hedge funds, in accordance to the client's risk analyses, in order to have a well-balanced risk portfolio.

On numerous occasions, we have been given feedback from clients who say that because they heard from someone that hedge funds are extremely high risk, they refuse to invest in hedge funds or they would now like to disinvest, to their own disadvantage.

I have read many good articles of Bruce Cameron, but his attached article on Hedge Funds "Misleading claims ensnare investors in high-risk hedge funds", is inaccurate, misleading and to the disadvantage of the public.

Andre Delport

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