Hedge funds are having a notoriously difficult time since the passage of the Dodd-Frank Act in 2010, but that hasn’t deterred startups from coming out in droves. One startup can boast past investing performance that you typically won’t find in other investment firms. The Lion Star Fund has achieved a significant degree of notoriety for their solid investment plays and huge investment returns. Headed by Todd Napoli, the fund operated solely as a family fund from 2006 to 2014 before branching out into the current hedge fund earlier this year.
A Startup with Experience
Although the fund is essentially in its infancy as an open hedge fund, the family office proved to be successful at garnering high rates of return. For 8 years, their average realized rate of return was steady at 45.4% and a win rate above 80% even while the economy tanked during the subprime mortgage crisis. The family fund continues to operate, investing in commodities, developed nations’ market indexes, and currencies. But, the new Lion Star Fund is also operating as an open hedge fund, attracting clients from all over the world.
The fund started out with a mere $500,000 in investment capital, but over 8 years, they managed to earn over $10,000,000. The family fund never dipped below 40% in terms of their rate of return. The breakdown of the rate of return per year looks like this:
- 2006 – 42.6%
- 2007 – 43.9%
- 2008 – 47.3%
- 2009 – 43.8%
- 2010 – 48.6%
- 2011 – 41.4%
- 2012 – 47.1%
- 2013 – 48.9%
Volatile Environment for Hedge Funds
Although Lion Star’s family fund was consistent in their investment, they were not subject to new SEC regulations that require more transparency among hedge funds. As a hedge fund, the Lion Star Fund would have to contend with this volatile environment if they wanted to continue earning their consistent rates of return.
As it turns out, however, the fund has managed to skirt the regulations doled out by the SEC. Although they are based in New York City, the fund is actually registered in the British Virgin Islands. They are, thus, not subject to the rules and regulations imposed on American-registered hedge funds. Some might argue that avoiding the U.S. market limits their client base, but the Lion Star Fund believes they can attract enough investors based primarily on their past performance as a family office. They may also have a leg up on the American-based competition, considering that they are not beholden to SEC rules.
Tough Road Ahead
Still, the road is always tough for a hedge fund that is just starting out. This is especially true when there are already established hedge funds with much more notoriety. Still, the Lion Star Fund’s ability to avoid SEC regulations in the British Virgin Islands and their apparent knack for investment make them a safe bet for any savvy investor. Hedge fund investment itself is actually seeing an increase in 2014, thanks in large part to the economic turnaround experienced by the United States. So, although the road will undoubtedly be tough, the signs are certainly promising for a hedge fund as successful as Lion Star.
