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Saturday October 20 2018
 
The Cash Machine

Forbes  February 16, 2000

by J. Alex Tarquinio

 

      NEW YORK. 1:25 PM EST-Dion Friedland spends a lot of time in the air in his quest to sniff out emerging e-commerce companies in the far-flung corners of the globe.

      "Europe is just starting to explode in terms of Internet IPOs," the hedge fund manager said from his South African home, where he was preparing for business trip to the Far East. "We will go wherever we find good opportunities. Certainly, we would participate in India, Hong Kong, Japan and Australia."

 

      For now, three new e-commerce hedge funds that Friedland launched last month can only accept tax-exempt investments from Americans, either from U.S. charitable organizations or certain types of individual retirement accounts. But within six months, Friedland says he plans to launch similar onshore funds, which would be open to U.S. institutional investors and wealthy Americans.

 

      Magnum, a Nassau, Bahamas-based hedge fund company Friedland founded four years ago, had seven of the top-ten offshore funds in terms of 12-month total returns, including the top-performing offshore fund (up 119.82%), according to HedgeFund.net, which distributes hedge fund data online.

 

      With just a month under his belt managing the e-commerce funds, Friedland's returns have already been spectacular. One fund that invests in initial public offerings and pre-IPO companies is up about 65% and another that invests in young public companies is up about 21%, according to Magnum. Both of these funds require a minimum $250,000 investment.

 

      Friedland said these are aimed at institutional investors because he does not think that wealthy individuals should invest directly in hedge funds unless they can buy into at least half a dozen of them. Hedge funds tend to be much more volatile than garden-variety mutual funds, and they are less open to public scrutiny. That's why the minimum investment is lower ($100,000) for Magnum's e-commerce fund of funds, which takes positions in several hedge funds.

 

      This fund, which is up 41.55% since its launch last month, holds stakes in both of Magnum's new e-commerce funds. Fund of funds, by their nature, will have higher management fees. Savvy investors might object to paying two levels of management fees to the same money manager. Though Friedland says his fund of funds will make some direct investments in e-commerce companies, he defends the decision to invest in his own funds based on these funds' phenomenal short-term returns. "We expect the fund of funds to have at least a 100% return this year," he said.

 

      Friedland said he would also not rule out investments in two companies of which he is a board member. Both of these have plans to go public soon--the U.S.-based Sneakers.com, which sells sports gear online, and U.K.-based Braindock.com, which allows users to download software for Palm handheld devices.

 

      Expense ratios for the two single-manager funds--Primo Capital Growth Fund and e-Com Growth Fund-- are about 1.5%, on the high side considering the large minimum investment. But the expense ratio would climb much higher for the Magnum e-Com fund, depending on the cost basis of the underlying funds it invests in.

 

      Friedland said this fund of funds has positions in about half a dozen e-commerce hedge funds, including the two he manages, and will add a few more soon. The fund of funds can also take direct positions in e-commerce companies if he thinks they are under-represented in the funds in its portfolio. He said he will try to keep the fund of funds at least 100% invested, and can leverage up as much as 25%.

 

      The onshore e-commerce fund of funds that he plans to launch soon for U.S. investors would be similar to the offshore fund, but it would not be a clone, as are many onshore and offshore funds with the same manager. That's because most Americans wouldn't be eligible to invest in many of the hedge funds in this fund of funds. "But it would have the same global reach," he said.


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