The global economic environment has created new investment opportunities, with hedge funds being one of them.
Their flexible nature offers a great investment option for those looking for fewer limitations.
Luckily, hedge funds have slowly begun to appear in Africa, including Kenya. If you’re interested in exploring hedge funds in Kenya, this article is a great place to start.
What are hedge funds?
A hedge fund is an investment partnership involving a fund manager and several investment partners.
The fund manager oversees the pooled money from partners, following a set strategy or goal. This structure can be either a limited partnership or a limited liability company.
Private Motivation
Hedge funds aim to maximize returns and reduce risk. Unlike mutual funds and venture capital, which follow different investment approaches, hedge funds take a more aggressive stance.
They often invest in riskier opportunities and seek profits regardless of the overall economy. The name “hedge fund” reflects this goal of making money in any economic climate
Various Types Of Investment
Hedge funds invest in various areas, including private equity, IPOs, bonds, real estate, and anything else that can generate profit. Fund managers are compensated based on agreements or a standard “2 and 20” model. This means they earn 2% of the fund’s net assets and 20% of profits above a set return value.
These are universal principles that characterize hedge funds
To invest in a hedge fund, all partners must meet a certain net worth requirement, which varies by country and fund policies.
Hedge funds have a broad investment base and can invest in any type of asset with no restrictions.
They often borrow funds to execute their investment strategies, although this approach carries risks.
The fund manager and investment partners follow the “two twenty” standard, meaning the manager takes a 2% fee for fund management and 20% of the profits.
Venture capital vs. hedge funds
Many confuse hedge funds with venture capital, but they differ. Hedge funds invest in any type of asset, while venture capital focuses on financing startups through equity and debt.
Hedge fund strategies are managed by a professional team. In contrast, venture capital funds manage money for investors who want to support small companies with potential for growth.
Hedge funds in Africa
Hedge fund adoption in Africa has been slow compared to other markets. South Africa leads the continent in the number of hedge fund entities.
How to start a hedge fund in Kenya
Before starting, it’s important to know that 4 to 10% of hedge funds fail each year, while many others are folded, abandoned, or turned into private investment funds.
While hedge fund progress in Kenya is noticeable, the industry is still in its early stages. Are there hedge funds in Kenya?
To answer that, you first need to understand how to start a hedge fund in Nairobi or anywhere else in the country.
Regardless of the investment amount, the hedge fund must conduct a private placement to get approval. Kenyan law limits the number of investors to 100, whether individual or corporate.
If the number exceeds this limit, the Capital Markets Authority (CMA) reviews the situation. Hedge funds in Kenya are not heavily regulated due to their specialized investment niche.
The secretive and exclusive nature of hedge funds also contributes to the government’s relaxed approach.
To start a hedge fund, you must obtain a license from the CMA, though their operations may attract attention from agencies like the CMA or the Central Bank of Kenya (CBK).
Escrow Research and Analytics Kenya Ltd
It is a research and analysis firm with investments in the money and equity markets. It provides analytical information on stock market statistics, money market performance, and macroeconomic trends.
Amani Capital
Amana Capital is a licensed fund manager regulated by the CMA since 2003. They offer financial services to pensions and investment platforms for institutions. They also provide unit trust products for investors with significant resources.
Fanisi Capital
The Norwegian Investment Fund for Developing Countries (Norfund), established in 2009, targets profitable industries like agriculture, healthcare, and energy.
They offer services to firms seeking funding of at least $1 million (sh.103 million) and aim to exit investments within 3 to 6 years.
Savannah Fund
Savannah Fund provides seed capital, investing between US$25,000 and US$500,000 in early-stage, high-growth technology startups (web and mobile) across sub-Saharan Africa.
Novastar ventures
It is a venture catalyst firm that supports the next generation of entrepreneurs creating innovative business models to serve East Africa’s mass market profitably.
Capital ventures Kenya ltd
Capital Ventures Limited is located in the Nairobi GPO building.