True Beacon Hedge Fund: Investment Strategies And Opportunities

True Beacon is an investment firm that focuses on identifying opportunities in Indian public markets. The company launched its first hedge fund, True Beacon One, in September 2019. This fund is an Alternative Investment Fund (AIF) with a minimum investment requirement of ₹1 crore. The fund takes a dynamic hybrid strategy, investing in both public equities and fixed-income instruments, with the aim of delivering returns of 9-10%.

True Beacon's second hedge fund, True Beacon Two, was launched in August 2021. Similar to its predecessor, this fund is also a Category III AIF, requiring a minimum investment of ₹1 crore. The fund's investment strategy includes a 65% allocation towards equity and 35% towards debt instruments, with a focus on tax-free bonds offered by the Government of India.

True Beacon is led by co-founders Nikhil Kamath, Richard Pattle, and CIO Rohit Beri, who joined as a former hedge fund manager in the US/Singapore. The company aims to disrupt the asset management space by being transparent, client-aligned, and performance-driven.

True Beacon's investment philosophy

True Beacon is an investment firm that focuses on identifying opportunities in the Indian public markets. It aims to be a transparent, client-aligned, and performance-driven investment firm. Here is an overview of their investment philosophy:

Data-driven Decision Making

True Beacon cuts through the noise of the market by identifying actionable signals that attempt to minimize biases. They use a disciplined approach to investing that is tested across market cycles. By analysing market trends and macroeconomic conditions, they make data-driven decisions to optimize returns.

Risk-Adjusted Approach

True Beacon takes a risk-adjusted approach to investing, where every investment decision is made with a careful evaluation of risk factors. They aim to safeguard their clients' capital in the face of market volatility by understanding their risk tolerance and offering suitable investment products. This approach helps protect their clients' capital while still seeking attractive investment opportunities.

Alternative Investment Strategies

True Beacon offers hedged and uncorrelated investment options to provide superior risk-adjusted returns across market cycles. Their alternative investment funds (AIFs) provide a range of strategies, including investing in startups, venture capital, private equity, and derivatives. These funds are designed for sophisticated investors with a high-risk appetite.

Bespoke Investment Solutions

True Beacon provides holistic multi-asset investment solutions tailored to their clients' needs. They understand their clients' risk-reward appetite and offer curated portfolios driven by fundamental and quantitative strategies. Their investment strategies include a mix of long and long-short positions, with a focus on large-cap companies and dynamic equity allocation.

Focus on India's Growth

True Beacon is focused on India's economic ascent and provides investment opportunities in the country's public markets. They cater to both domestic and global clients who want to participate in India's growth story. Their investment strategies are designed to capitalize on the country's upward growth trajectory.

True Beacon's fee structure

True Beacon is an investment firm that offers a hedge fund called True Beacon One. This fund is an Alternative Investment Fund (AIF) and is considered an unconventional investment fund.

True Beacon One has a unique fee structure that may seem attractive to investors. The fund has no asset management fee, entry/exit fee, or lock-in period. However, it does have a carry rate of 10%, meaning the fund manager will charge 10% of the profits as a performance fee. This is an important distinction as, unlike other funds, True Beacon One does not have a hurdle rate. A hurdle rate is a threshold that must be met before the fund manager can deduct the carry fee. In this case, the fund manager will charge the carry fee regardless of the fund's return.

For example, if True Beacon One generates a return of 12%, a fund with a hurdle rate of 10% would only charge the carry fee on the profit above 10%. So, the carry fee would be charged on 2% of the total profit. However, since True Beacon One has no hurdle rate, the fund manager will charge the full 10% carry fee on the entire 12% profit.

In addition, True Beacon One has a high watermark, which means that investors will only pay the performance fee if the fund value crosses a certain peak. If the fund value falls after reaching this peak, no performance fee will be charged until the fund value crosses that high watermark again.

While the absence of certain fees may seem appealing, it's important to understand the carry rate and high watermark structures to make an informed decision about investing in True Beacon One.

True Beacon's investment strategy

True Beacon is an investment firm that focuses on identifying opportunities in the Indian public markets. It aims to disrupt the asset management space by being transparent, client-aligned, and performance-driven. The company provides bespoke investment solutions and prioritises understanding its clients' risk-reward appetite.

True Beacon's investment philosophy is centred around a disciplined approach that is tested across market cycles. It employs data-driven decision-making, cutting through market noise by identifying actionable signals to minimise biases. The firm evaluates risk factors with every investment decision to safeguard capital in the face of market volatility.

True Beacon offers curated portfolios driven by fundamental and quantitative strategies for the Indian public markets. It also provides hedged and uncorrelated offerings for superior risk-adjusted returns across market cycles. Additionally, they cater to global clients interested in the Indian growth story.

True Beacon's first hedge fund, 'True Beacon One', is an Alternative Investment Fund (AIF) with a minimum investment of ₹1 crore. It follows a defensive hybrid strategy, taking a long position on about 60% of its fund value and a long-short position on the remaining 40%. The long position involves buying and holding shares of large-cap companies for the long term, while the long-short position involves high-risk, high-return strategies to generate alpha in the short term.

True Beacon's second AIF, 'True Beacon Two', is a multi-asset fund investing in both equities and fixed-income instruments. It aims for a 9%-10% return with an approximate asset allocation of 65% towards equity and 35% towards debt instruments. The equity component uses NIFTY200 as its benchmark, while the debt component invests in tax-free bonds offered by the Government of India.

True Beacon simplifies wealth management by providing bespoke investment solutions for ultra-high-net-worth individuals (UHNWIs), helping them prioritise their businesses, family, and philanthropic activities. The company has a global client base of over 600 entities, including enterprises, HUFs, CXOs, NRIs, and influential families.

True Beacon's performance

True Beacon is an investment firm that focuses on identifying opportunities in the Indian public markets. The company launched its first hedge fund, True Beacon One, in September 2019. The fund follows a defensive hybrid strategy, taking a long position on ~60% of its fund value and a long-short position on the remaining ~40%. While the fund aims to outperform the Nifty50 benchmark by at least 6% per annum, its performance has been mixed. In the first 6 months after its launch, it struggled to beat the benchmark. However, it has managed to outperform its benchmark over a 2-year period, with a 30.5% return compared to Nifty50.

True Beacon's second fund, True Beacon Two, was launched in August 2021. This fund takes a less risky approach by investing in both public equities and fixed-income instruments. It aims to deliver returns of 9%-10% per annum. However, it is important to note that True Beacon Two is a new fund with only two months of performance history, making it challenging to assess its true potential.

True Beacon's first fund, True Beacon One, has faced criticism for its high-risk strategy and lack of transparency. While it initially outperformed the market, there are concerns about the tax implications of the fund's gains, which could be taxed as business income rather than capital gains. Additionally, the fund's high watermark principle has been criticised for potentially resulting in double payments of performance fees.

Overall, while True Beacon's funds have shown some promising returns, there are also complexities and risks that potential investors should carefully consider before making any investment decisions.

True Beacon's pros and cons

True Beacon is an investment firm that focuses on identifying opportunities in the Indian public markets. It was founded by Nikhil Kamath, the founder of the online investment platform Zerodha, in 2020. The company aims to be a transparent, client-aligned, and performance-driven investment firm.

Pros

• True Beacon takes a disciplined and data-driven approach to investing, attempting to minimize biases and safeguard capital in the face of market volatility.
• The company offers a range of investment strategies, including hedged and uncorrelated offerings, Indian public market portfolios, and bespoke investment solutions.
• True Beacon's first hedge fund, 'True Beacon One', outperformed its benchmark in its first two years, generating a 30.5% return.
• True Beacon's second fund, 'True Beacon Two', launched in August 2021, aims to deliver returns of 9%-10% by investing in both equities and fixed-income instruments.
• True Beacon does not charge any management, entry, or exit fees, providing flexibility to investors.

Cons

• True Beacon's funds have high minimum investment requirements, typically ₹1 Crore, making them inaccessible to most investors.
• The funds are not stringently regulated, as they are only registered with SEBI and lack the stringent rules applied to equity mutual funds.
• True Beacon's fee structure is complicated, with a 10% Carry Fee (performance fee) and no Hurdle Rate, meaning the fund manager will charge a fee regardless of the fund's performance.
• Taxation of True Beacon's funds is high, with LTCG taxed at 12% and STCG at 18%, and potential business income taxed at 42.74%.
• True Beacon's funds are complicated products, making it challenging for investors to understand the risks involved.
• True Beacon's second fund, 'True Beacon Two', has only a short performance history, making it difficult to assess its long-term potential.

Frequently asked questions