This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Dec 14 - 20, 2015.
Hedge funds have always been perceived as highly risky propositions. As the first licensed boutique fund manager in Malaysia, Malayan Traders Capital founders Devan Linus Rajadurai and Aaron Yew aim to debunk that perception with their low-risk hedge fund, which uses value investing strategies with leverage.
FOR Devan Linus Rajadurai, wealth management and investing runs in his blood. His late grandfather Kok Ah Too and mom Kok Wai Leng practised a set of investing principles that helped to grow and preserve the family wealth for eight decades.
Today, Devan uses the same principles at Malayan Traders Capital, which he co-founded with long-time friend Aaron Yew in 2012. Devan is chief investment officer while Yew is CEO of the company. Last month, its sister company, MTC Advisors Sdn Bhd, became the first licensed boutique fund manager in the country.
Devan’s grandfather was a renowned investor and partner at Malayan Traders & Co Sdn Bhd, one of the largest stockbroking firms in the 1960s. But he had started investing when he was just earning a school teacher’s salary. With a wife and seven children to support, he put aside what money he had left over to invest in stocks.
After researching a number of companies, Kok identified two tin companies — Berjuntai Tin and Selangor Dredging — which provided great returns. He strongly believed in the potential of these companies, so much so he mortgaged the family home and used the money to invest.
“He was using the concept of leverage, which is the strategy our hedge fund uses now. He calculated that the tin mines were paying a dividend yield of roughly 20% per annum, and mortgaging his house at a 4% rate at the time meant there was opportunity for arbitrage,” explains 30-year-old Devan.
Kok’s investments paid off handsomely. In just a few years, he paid off his housing loan and managed to create a healthy income stream for himself.
“He never sold his stocks. He would use the dividends to buy more of the stocks. His rule was to stay invested,” says Devan.
In 1960, Kok was invited to be a partner at Malayan Traders & Co. He helped to grow the company into one of the largest stockbroking firms in the country. He also became the first Malaysian to be chairman of the then Stock Exchange of Malaysia and Singapore.
In 1972, his daughter Wai Leng joined the company with the intention of being groomed to take over the family business. Together with her brother, they ran the company until it was sold in 1985.
The reason for the sale? “They didn’t want to manage a business. They wanted to focus on investing and growing the family wealth. So, they managed their money as a family office instead,” explains Devan.
When he graduated with a bachelor of commerce degree in accounting from Macquarie University in 2007, his mother asked him to help out with the family investments. “I had studied accounting and showed an interest in investing. I also dabbled in investing when I was younger, but nothing serious. My mom had been managing the local investments, so she asked if I could help her manage and grow our family’s overseas investments,” says Devan.
He adopted his grandfather’s time-tested value investing philosophy, which uses leverage, and applied its principles when selecting overseas investments.
In 2011, when Devan was working at Accenture in Melbourne, he spoke to Yew about starting a hedge fund. “I was in the fund management industry in Australia. We began by asking each other what the other thought about particular companies as investments. Later that year, we started to receive requests from family members and friends to manage their money,” recalls Yew, 30.
“But we knew that managing our own money was very different from managing other people’s money, so we thought if we wanted to do this, we had to do it right. So, in 2012, we began operating Malayan Traders Capital out of Singapore.”
In the island republic, the duo found that a significant proportion of their client base were Malaysians. “That sort of sparked our interest in coming back [to Malaysia]. We realised that Malaysians were looking to invest overseas via hedge funds, but didn’t have access to any here,” says Yew.
Malayan Traders Capital Ltd structured its Absolute Return Fund in the British Virgin Islands in 2012 and moved it to the Cayman Islands in 2014. In 2013, the company set up MTC Advisors in anticipation of getting a licence to operate as a boutique fund manager in Malaysia. MTC Advisors received the licence on Nov 19.
The Securities Commission Malaysia had relaxed its rules in July to allow firms with niche fund management expertise to be licensed as boutique fund managers. The companies would only require a paid-up capital of RM500,000, compared with RM2 million for a full-fledged fund management licence. Under the new licence, boutique fund managers are allowed to manage assets of up to RM750 million and have a clientele of not more than 50 qualified investors.
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