No. However, as a Registered Fund Management Company (RFMC), we are fully regulated by the Monetary Authority of Singapore (MAS) and are listed in the MAS Financial Institutions Directory. A fund management license is required once our assets under management pass the threshold defined by MAS. Currently, this threshold is SGD 250m (~USD 180m). At present, our scale of operations do not require a license from MAS, but we are still required to comply with all the relevant laws, such as those pertaining to anti-money laundering and the counter-financing of terrorism.
There are two choices of fund domicile: onshore (home of the Fund Manager) or offshore (somewhere else). The Fund Manager is based in Singapore, but current tax legislation is unfavorable to Singapore-based funds due to requirements for minimum size, minimum spending etc. There is no automatic tax exemption for investment funds, which creates the risk that a Singapore-based fund might suddenly become subject to Singapore income tax in any given year. This would be highly disadvantageous to the fund's investors, so the decision was made to base the fund offshore.
The Cayman Islands is by far the most popular location for offshore investment funds. There is a Mutual Funds Law that recognizes the concept of investment funds and contains appropriate legislation. The Lighthouse Fund is regulated as a Registered Mutual Fund by the Cayman Islands Monetary Authority (CIMA). CIMA regulatory requirements include annual audits and the appointment of a licensed fund administrator.
The US Dollar is the closest thing to a "universal currency" in the world today, so it was chosen as a matter of convenience. The actual underlying investments will be in different currencies, so the Fund's Net Asset Value will reflect movements in both security prices and currency exchange rates.
Fund Administrator: Swiss Financial Services is headquartered in Zurich, with offices in Ireland, the Cayman Islands, Switzerland, Singapore, and the USA. The Singapore office allows issues to be quickly resolved during the Fund Manager's office hours. Visit them here.
Stockbrokers: UOB Kay Hian is a subsidiary of UOB Bank, one of the 3 local banks in Singapore. UOB Kay Hian and UOB Bank are both listed on the Singapore Stock Exchange. Visit UOB Kay Hian here. RHB Securities (formerly DMG & Partners) is an indirect 100% subsidiary of RHB Bank Berhad. RHB Bank is listed on Bursa Malaysia. Visit RHB Securities here.
Note: The Fund uses bank-backed stockbrokers as a form of implicit insurance. Lehman Brothers, Opes Prime and MF Global all collapsed due to a shortage of working capital. While UOB and RHB do not guarantee the solvency of their stockbroking operations, there still remains the possibility that they can extend liquidity to their stockbrokers to tide them through any temporary working capital shortages. This type of "emergency credit line" is not available to independent stockbrokers.
Bank: Deutsche Bank (Cayman) is part of Deutsche Bank, which is listed on the Frankfurt and New York stock exchanges. Visit Deutsche Bank (Cayman) here.
Anything listed on a stock exchange or traded on an over-the-counter market somewhere in the world is fair game, although we expect to be focused on Asian equities. We do not invest into private companies, wine, raw land, fine art, physical real estate and so on.
The Fund is able to do so, but whether bonds are actually bought will depend on their attractiveness.
Alignment of Interest. Performance fees provide the financial motivation to do well for all clients. Additionally, the manager has a substantial proportion of his net worth invested alongside the clients, so losses will result in direct financial pain.
Long-Term Orientation. The investment horizon is 3-5 years. This time period is generally sufficient to allow investment fundamentals to dominate market sentiment.
No Cash Limit. The manager will not be fully invested at all times. If there is nothing to buy, nothing will be bought. On the other hand, when opportunities arise, the cash can be quickly put to good use.
No Size Restrictions. There are no hard upper or lower limits on the size of companies eligible for investment. This makes for a very large investment universe, unlike billion-dollar funds which are often limited to very large companies because of size or liquidity constraints.
Proprietary Research. There is no reliance on third-party research. Instead, the starting point is the data published by the companies themselves in the form of annual reports and interim financial statements. This is augmented by data published by competitors, industry publications and websites, conference calls and company visits.
Special Situations. Most of the intellectual firepower suited to special situations investing is employed at large funds which have minimum size or liquidity constraints. As a result, in the small- and mid-cap space there is limited competition, and potential returns are higher.
This is actually two questions:
(a) How do I know the returns are real; and
(b) How do I know you won't run away with my money?
For separately managed accounts, each client's assets are held in his/her own name. Each month, the client will receive a statement from the custodian (not the manager) on his/her holdings. It will be obvious whether he/she is making a profit or a loss. Because each client's assets are held directly in his/her name, the manager has no access to the funds and cannot "run away" with the money.
For the Lighthouse Fund, the Fund's assets are held at the Fund's custodians. Currently these include UOB Kay Hian and RHB Securities (formerly DMG & Partners). The Fund's cash is held at Deutsche Bank (Cayman). As for returns, the Net Asset Value per unit used for subscriptions and redemptions is calculated by Swiss Financial Services. None of these entities are related to the Fund Manager in any way.
The fees are not high. In fact, they are low. The 2 valid bases of comparison are hedge funds (which charge performance fees) and long-only equity mutual funds (which do not charge performance fees).
A typical hedge fund pays 2% of assets per year for management fees, plus 20% of profits with a highwater mark. The Lighthouse Fund pays management fees of 1% of assets per year, plus 15% of profits with a highwater mark. This "1 plus 15" arrangement is clearly cheaper than the "2 and 20" fees of typical hedge funds.
A typical long-only equity fund will charge 1.5% of assets annually as management fees. Your manager's base management fee is 1% per year. This means that if performance fees are not charged because results are poor, the total fees are lower. If the results are good, there will be performance fees charged, so the total fees will indeed be higher. This is the whole point of "pay for performance" - only a manager confident of producing superior results over the long term would want such a "low base, high bonus" arrangement.
The Fund's Net Asset Value per unit is sent to clients once per month. As the Fund Administrator requires official statements from the Fund's stockbrokers, the Net Asset Value is usually finalized about 3 weeks after month-end.
Additionally, the Fund Manager publishes a quarterly newsletter which includes some discussion of market conditions, changes to the portfolio, and a special topic related to investing in general. The newsletter is usually released 30-45 days after the end of each calendar quarter, after the offical Net Asset Value per unit of the Fund has been announced.
The best investors in the world, as documented by Warren Buffett in the article The Superinvestors of Graham-and-Doddsville, returned 15-20% annually on a compounded basis. All had careers spanning at least 10 years. All but one had losing years, and most had 2-year losing streaks. The only investment vehicle never to have a losing year was the Buffett Partnership, and even then the Partnership had three sub-20% years during its 13-year life.
Your manager makes no claim to be the next Warren Buffett. Volatility and losing years are part of the deal. Someone who expects 20% per year, every year, should look elsewhere.
Your manager prefers the freedom of an independent operation. This freedom includes the ability to decline business from prospective clients when there does not seem to be a good fit.
Simplicity is a virtue. The current layout is easy to maintain and works across all browsers. Your manager prefers to spend time on investment research rather than website maintenance. That said, suggestions for improvements are always welcome!
Contact us directly via phone or email. Currently, as an RFMC, we are restricted to qualified investors only. The plain-English definition of qualified investors is:
(a) Individuals who have annual incomes exceeding SGD 300,000 or net worth exceeding SGD 2m; or
(b) Entities with net assets exceeding SGD 10m
Of course, the stated thresholds above can be met with their equivalents in foreign currency.
These are legal requirements and are not negotiable. Additionally, the Fund Manager is required to keep "reasonable records" proving that each investor is indeed a qualified investor, so prospective clients should provide official documents as evidence of income, net worth, or net assets.
Note: Due to the additional administrative work required for separately managed accounts, there is a minimum size requirement for new separate accounts. This threshold may be revised from time to time. Currently, the minimum size for new individual separate accounts is SGD 2m (~USD 1.5m). For institutions, depending on the frequency and detail required in the reporting, the minimum size requirement may be set higher.Last Update: 26 April 2017