Owen Li learnt his investing ropes from Raj Rajaratnam of the Galleon Group. Raj Rajaratnam, together with Rajat Gupta, made a fortune from stocks. Unfortunately, their methods involved the illegal technique of insider trading. Both, Raj Rajaratnam and Rajat Gupta, are now behind bars, serving several years of incarceration.
When Owen Li set up Canarsie Capital, he had no trouble attracting deep-pocketed investors. They poured in money like there was no tomorrow.
In March 2014, Canarsie Capital boasted of an AUM of $100 Million. A few days ago, the AUM stood at $200,000.
The remarkable aspect is that a bulk of the money evaporated into thin air in a matter of just three weeks.
Owen Li revealed to his shell-shocked investors that this fiasco happened because he “acted overzealously” and made a series of “aggressive transactions” over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses.
Owen Li consoled his investors by saying that he is “truly sorry” for the “devastating losses” that he caused them.
At this stage, we must note the caution issued by Dhirendra Kumar of Value Research. Dhirendra Kumar points out that several Portfolio Management Schemes (PMS) are structured the same way as hedge funds, i.e. heavy reward for out-performance and no penalty for losses. This incentivizes aggressive risk-taking by the fund manager and jeopardizes the investors’ capital, he says.
So, if you are invested in a PMS, you better keep an eye on where the fund manager is investing your hard-earned money.