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Asia Pacific Intelligence

Japan expects more hedge funds to put up shop in Tokyo

Tuesday, October 01, 2013

Precy Dumlao, Opalesque Asia: Japan's market regulator, the Financial Services Agency, is hoping Tokyo will attract more foreign hedge funds to put up shop in the country since the agency relaxed its rules to open investment management business there.

According to a report by Financial News, data from Eurekahedge indicated that there are 55 locally-registered hedge funds with offices in Japan, but only 20 are domiciled in the country. But despite the relaxation of the rules, there are still significant challenges that make the entry of foreign hedge funds to Japan difficult, the report said.

The report quoted Kazuho Suzuki, chief operating officer and co-founder of global macro specialist Edgebell as saying, "Prior to the changes, the regulatory hurdles for institutional hedge funds were very high. Before opening for business you had to hire at least seven people as investment managers and then wait a year before getting a license - while paying those seven people. You also needed ¥50 million ($50,000) of capital."

The changes were introduced by the FSA in April 2012 specifically to attract institutional investors by easing the requirements for capital the number of hired employees. But the new rule also doubled the capital to ¥10 million ($100,000) but reduced the number of employees to two full-time members and a part-time auditor.

Industry observers say that despite the easing of the hedge funds rule, Japan has not yet seen an influx of hedge funds. Hedge Fund Japan, a forum for hedge funds, investors and service providers in the country said they expect the number of hedge funds putting up office in the country to rise in the coming months.

Meanwhile, hedge fund guru Ray Dalio said two weeks ago, that the Japanese economy would need another big round of stimulus to boost its growth even as some emerging markets are experiencing a downward spiral.

Dalio, who heads one of the world's biggest hedge fund, the $150bn Bridgewater Associates, made the statement in a speech before the Japan Society held in midtown Manhattan. He cited that the Bank of Japan injected about $1.4tln into its flagging economy in April this year in an effort to end two decades of stagnation. The monetary easing, coupled with reflationary, pro-growth policies championed by Japan's Prime Minister Shinzo Abe, sent stocks rallying and the yen tumbling.

Also last week, Japan introduced amendments to the rules on short sales. The FSA said the changes would take effect on November 5 this year.

Currently, the rules and regulations governing short sales in Japan are only applicable to trades made on exchanges. However, as a result of the amendments, the scope of the existing rules will be expanded and short sales made on Proprietary Trading Systems will also be subject to the existing short sale regulations. Specifically, short sales made on a PTS will be subject to the following rules: the prohibition of "naked" short selling; "short sale" flagging requirements of the trader (i.e. identifying whether the sale is long or short to the broker); the Uptick Rule; Short Sale Balance Ratio reporting and disclosure requirements and the prohibition on the use of shares acquired through a public offering to close out short positions created through short sales made during the offering period.

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
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