The origin story of Hedonova, a relatively new alternative investment fund, is one of classic entrepreneurial opportunism. The co-founders, Alexander Cavedish and Suman Banerjee, are both investment veterans. While working at an established hedge fund they found they were struggling to arrange an investment deal in dental clinics in India. The pair realised this was both challenge and opportunity. If they, as experienced professionals couldn’t make such an investment, what chance would a retail investor have?
This was the spark for launching Hedonova, a global alternative investment fund that makes it easy for ordinary investors to access international investments. It allows its customers to share in the returns from activities as diverse as the Chilean wine market and Asian data centres, with investments categories ranging from new areas such as sports image rights to established opportunities such as litigation finance.
As Neel Aryan Birla, head of investor relations, explains, “Our mission is to allow anyone to invest in alternative assets. The vision is to bring freedom to investors. Cross-border investment in anything apart from stocks and ETFs is very complicated for normal investors. If you’re in the UK and want to invest in Korea, you’ll go crazy trying to figure it out.”
As Hedonova co-founder and CIO, Banerjee, says, “Money should be like music. There is nothing stopping an American enjoying Japanese music, or a Korean enjoying African music. It should be the same for investments. Wherever you are, you should be able to invest anywhere.”
Alternative investments on the rise
Hedonova’s arrival is part of a wider boom in alternative investments. As Birla explains, “There are now more alternative investment offerings in the world than there are stocks listed on the NYSE. Imagine how confusing it is for investors. At least with the stock market you have data. For alternative investments there is no data. That’s why we wanted to go for this fund route. We’re making thing simple for investors.
“Clients just make a single investment and that gets diversified into multiple areas.”
While Hedonova makes it clear that no-one’s first line of investment should be in the alternative market – everyone should start with routine portfolio fillers such as bonds, stocks, ETFs and mutual funds – there is no reason not to look at alternatives to counter exposure to the volatility many markets are experiencing.
The best defence against volatility is consistency, which is a major selling point for Hedonova. The fund, which doesn’t insist on any kind of lock-in and has a redemption period of just 30 days, invests across a wide range of investments, adopting a single strategy in each market it invests in. With wine, for example, it buys direct from wineries, purchasing a whole year’s vintage. But it only operates in Burgundy and Chile, where it only buys white wines.
Hedonova is therefore able to offer the advantages of going both deep and wide at the same time. With a deep strategy, experts who know a single part of a market in intimate detail are able to take advantage of investment nuggets to spot the best opportunities. Going wide usually means knowing just enough about a lot of markets to dip in here and there. It has the advantage of spreading risk across markets. Hedonova’s approach is to know all there is to know about a lot of very specific markets.
As Birla explains, while they are always delighted to see higher returns, consistency is more important. “Our target for returns, the estimate we provide to investors, is to generate between 25% and 30% a year. Anything more than that we don’t take credit for. We’ll admit to investors we got lucky and the markets have treated us well. In the last two and a half years we have had outsized performance, for example, with a CAGR of 43% and 119%. But we don’t think that’s going to happen consistently, and certainly won’t be the case this year. We’ll be lucky to make 25% this year.”
Think global, act local
Another key feature of the Hedonova approach is that it offers global investments on a local scale. Because it has a global structure, with feeder funds in lots of markets, investors in the UK invest in a UK firm, while those in India invest in an Indian firm.
This simplifies things when it comes to paying tax. As Birla explains, “With Hedonova, people can make a global investment while paying local taxes, which is very convenient. If you invest in us in the UK, you pay capital gains tax on that and don’t have to worry about international tax filings or anything.”
Returns are also helped by the fact that the fund itself is structured to be tax-efficient. The global nature of its structure means it makes investments where they make the most fiscal sense. So when it invests in property it does so through a Middle East entity, whereas if it’s making a crypto investment it does so through its Bahamas company, because there is no tax on crypto in the Bahamas.
“Our global structure helps us keep our net tax rate down to just 3%, compared to an average of 15% for other funds. This means investors are paying tax once, and aren’t effectively being double-taxed,” explains Birla.
A well controlled experiment
Mention of crypto highlights how Hedonova is invests in exciting new categories, but only in small ways. Limiting the amount that goes into such areas means risks and exposures are kept low, while the company gets to learn about the market.
For a fund that’s got over 3,000 retail investors and is active in markets as diverse as carbon credits to music rights, the temptation may be to always think about higher returns, but Birla repeats the mantra that above all Hedonova is about consistency.
The fund’s Sharpe Ratio hovers at an enviable 2.3, meaning its volatility is very low.
And, as global markets continue to experience turbulence and volatility throughout the rest of this year and into next, retail investors will be looking for ways to balance portfolios and protect themselves against falling stock markets. Hedonova offers an interesting way to access and explore a range of unusual global investments, with minimum administrative complexity and a focus on delivering consistent returns.