Takayuki Asakawa’s new hedge fund offers both Japanese and foreign investors the opportunity to engage in a long-short strategy with Japanese stocks. Here are four reasons why they keep an eye on how it’s doing.
1. Asakawa has done it before.
The former Deutsche Bank analyst, who struck out on his own to launch Tokyo-based Zone Investments Inc. three years ago, has already used the strategy successfully.
The firm’s inaugural hedge fund, focused naturally enough on Japan, was open only to a small pool of investors and managed approximately $5 million. Since its inception in July of 2011, it hit pay dirt. A letter to investors said that that first fund returned an impressive 49.6% since its inception in July of 2011. That topped the Eurekahedge Japan Hedge Fund Index, which over the same period returned 29%.
Now Asakawa is confident he can do it again. Asakawa and Naoyuki Takahashi, a partner and the CIO of Zone Investments, run the Tidal Fund, his newest effort, together. The Tidal Fund uses a long-short strategy on a range of 100–150 Japanese stocks. It was launched with 600 million yen ($6 million), and a target of 5 billion yen within a year and 20 billion within three. Asakawa also hopes for a 20% return per year.
2. Asian hedge funds are still hot.
Tidal’s targets could certainly be met, despite the fact that things looked a bit cheerier in the fourth quarter of 2013 than in the first quarter of 2014. According to a report from Hedge Fund Research, “The strong inflows into Asian hedge funds that began towards the end of 2013 continued into the first quarter of 2014, driving total capital invested in the Asian hedge fund industry to a second consecutive quarterly record.”
However, Japanese focused hedge funds recorded a decline for the quarter, with the HFRX Japan Index falling -1.6% as the yen strengthened and the Nikkei 225 declined ever more sharply. In 2013, Japan led all hedge funds globally with a gain of +32.8% and attracted a record $4.5 billion of annual inflows; investors redeemed $1.4 billion from Japanese hedge funds in the first quarter of 2014, according to the research.
“As the global M&A boom accelerates with new cross-border transactions and activist inversion trades, the number of Asian hedge funds employing Event Driven and Macro strategies has increased in the last year, with these including not only Currency & Commodity, but Activist, Distressed, Quant/CTA and High Frequency Trading strategies,” said Kenneth J. Heinz, president of HFR, said in the HFR Asian Hedge Fund Industry Report.
“Attracted by the recent Weibo IPO and the widely anticipated Alibaba listing, sophisticated global hedge funds continue to identify opportunities, both long and short, in Asian equity, credit and currency markets. Hedge funds continue to actively position for progressive policy developments, as well as continued strategic M & A involving Asian corporations, with both of these serving as catalysts for monetizing opportunities created by increased market efficiency in coming quarter,” he said.
3. Appeal to a wider audience.
The Tidal Fund is intended for a wider audience than Zone’s first fund, and among those it hopes to attract are investors outside Japan. To that end, the fund is offered through the platform of Gordian Capital Singapore Pte. Not only will that allow the fund to reach a broader spectrum of investors, it will also allow Zone to focus on the fund itself and not on the details of administration.
Mark Voumard, executive director and CEO of Gordian, said that currently the Tidal Fund is not open to U.S. investors. He added that the firm does have other long-short Japan funds open to U.S. investors, subject to prequalifying conditions.
Japanese Prime Minister Shinzo Abe gave Japan’s economy a boost with Abenomics, his package of policy initiatives built on three “pillars” or “arrows”: monetary policy, fiscal stimulus and structural reforms. While Abe has “shot” two of the “arrows” in the quiver, launching a moderate economic recovery, there are still structural reforms to be tackled, and their potential effects are still unknown.
A slowdown in the wake of higher taxes—Abe boosted sales taxes from 5% to 8% in April, which hit consumer spending—and a lessening impact on imports of a weaker yen may have caused some investors to look warily at investments in Japanese companies. However, despite such negative factors as a 3.3% decline in factory output from May to June—the largest since the earthquake and tsunami in 2011—and a drop in business sentiment over the second quarter, new orders did rise in July, along with a slight increase in new export orders.
Expectations were that consumers, who stocked up prior to the increase in sales tax, would gradually acclimate themselves to the higher rate and resume consumption. In July, consumers did head back to the shops, and Japan correspondingly raised its overall economic assessment.
And despite the second quarter fall in business sentiment, the Bank of Japan's latest Tankan survey also indicated that large companies intended to increase investment by 7.4% in 2014.