Opalesque Industry Update - Hedge Funds: Big in Japan alright|
Although it may seem that the Sun may be setting on Japan’s economy, the same cannot be said for the country’s hedge funds. Amidst the turmoil in the Japanese economy, which have seen major conglomerates like Japan Airlines file for bankruptcy, Japanese hedge funds have taken advantage of the mayhem in the markets and posted decent returns by betting on liquid stocks.
And if a Bloomberg report is to be believed, this seems to be just the beginning for Japanese hedge funds investments. Frederic Eechaute, has led his Japanese hedge fund which was launched in the first week of December to post a 13 per cent return as of 22 January 2010.
So with the markets still unstable, how will hedge fund managers plan to tap into over 1,400 trillion yen worth financial assets owned by Japanese individuals?
Makoto Uraga, managing Director of Wealth Bay Investment, an independent advisory specializing in Japanese equities launched in September last year, believes that lower volatility coupled with higher returns is the key for luring investors.
“The Lehman shock hurt individual investors and they shifted their money from equities to safer assets such as bonds or bank savings. However, Japan's interest rates are still ultra-low and long only funds do not appeal to them because of their high risk profile. Our long-short strategy with an annual return objective of 15 per cent to 20 per cent with lower volatility should appeal to them,” he said.
But low volatility and high returns are not the only factors that will lure retail investors to hedge funds, according to Uraga the less complicated the product the better. “Unlike complicated structured products, our service is quite simple and transparent which should appeal to individual investors as well. They are sick and tired of financial products and services which are high-return but high-risk without enough disclosure and liquidity. Our customers can terminate the contract within 10 days from the outset of the contract or with one month notice even after this period passes,” said Uraga.
Bleak Japanese economy
And Uraga, who has over twenty years worth of experience in equities, thinks that the instability in the market and the possible occurrence of a "Black Swan" could suit Wealth Bay Investments approach to investing in the Japanese market.
“Until recently passive managers had been becoming more popular than active managers and stock prices do not reflect each individual company's fundamentals properly. However, recently we saw the difference in movement between the Tokyo stock Price IndeX (TOPIX) which comprises of more global firms and the Nikkei Index which comprises of mostly domestic firms, because stock prices start reflecting companies' fundamentals.”
“Although the Japanese stock market may be going sideways reflecting a sluggish Japanese economy, those companies that can capture the growing Asian demands may outperform those which cannot as Japan is luckily positioned near quickly growing Asian countries. Therefore, we think a long-short strategy should work in this environment and our years of investment expertise with stellar track record can be exploited,” he said.
And Kunio Tomiyama, the Chief Executive Officer of Wealth Bay Investments believes that Japanese stock will trump structured bonds when it comes to investors’ choice. “We find the long-short products with a steady 15 percent yield to be most attractive. Investors will also find more comfort in dealing with Japanese stock than the structured bonds,” he said.
But in terms of investment philosophy, Wealth Bay Investment is choosing a different path than most management companies. “Our investment philosophy is to focus on a few stocks with low volatility and stable yields. Most management companies will choose a diverse investment with risk management as their key focus. The basic management philosophy is different,” he said Whatever the management philosophy, it seems that Japanese hedge funds are not only beginning to creep back into the market but also post decent returns, telling us for now at least, hedge funds are big in Japan.
It is being issued ahead of the 4th Annual Hedge Fund Investment Japan Congress. Japanese investors and the international hedge fund community will once again meet together in Tokyo in May 2010. IQPC today announced the dates for its 4th Hedge Fund Investments Congress to be held 24-26 May 2010.