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New Protected Hedge Fund Captures Japanese High-Ne

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LONDON (–In four weeks, Shinsei Bank in Tokyo was able to raise US$20 million in additional assets for its first hedge fund of funds offering in a stock market that many foreign investors are exiting.

Individual investors in Japan seem eager to invest in their own markets but are looking more seriously at hedge fund strategies offering protection, according to officials at Investor Select Advisors in London.

“This is very much a specialist business,” said Peter O’ Neil Donnellon, Investor Select’s managing director for research and investment. “I would recognize that we are one of the few gathering assets from Japanese investors.”

Investor Select partnered with Shinsei Bank last year to offer a multi-strategy, yen-denominated fund to Japanese high-net-worth investors Previous HedgeWorld Story. The firm continues to manage the strategy it has incubated for the last year.

The Shinsei Protected Japanese Trust was launched on Feb. 1, after Shinsei officials were able to raise US$30 million in assets for a first tranche in December and January. Investor demand continued, and as the Trust outperformed Japanese stock indexes by up to 6%, a second tranche was opened in March and another US$20 million came in within a four-week period.

Recent research suggests that the Japanese hedge fund market may be shrinking, considering the allocation of capital to Japanese markets was down 20% at year-end Previous HedgeWorld Story. But much of the negative market sentiment is from foreign investors, given that the Japanese market is in the middle of a 13-year bear market, according to Investor Select.

Long/short equity managers still make up most of the Japanese hedge fund market, and investors are still interested in skilled hedge fund managers, while merger and acquisition activity in Japan is on the rise, according to Mr. Donnellon. The number of Japanese hedge funds has increased to 120 from the 35 hedge funds that existed in December 2001.

“The Japanese market is conducive to hedge funds because of the relatively small number of them operating in the world’s second largest equity market and the preponderance of index-related, cross shareholder unwinding and other Bank of Japan transactions which distort fundamental equity valuations,” he said.

The Shinsei trust is a diversified portfolio of 15 hedge funds, each invested in Japanese financial markets. After fees, the fund is expected to return 5% to 7% with low volatility.

But what is unique is the principal protection feature of the fund. The fund guarantees 80% with a potential to increase if the fund posts positive performance during its five-year maturation period.

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