The Plaza Japanese Equity Long Short Fund is a long/short equities fund that uses a quantitative alpha model to capture opportunities across a broad universe in the Japanese equity market.
Interview with Kazuyuki Murai
- How does the Alpha selection model work? Is the stock selection purely computer driven?
The model seeks to generate consistent Alphas by combining the use of both long-term indicators (PER, PBR) and short-term indicators (Return-reversal) in line with market conditions.
The portfolio is constructed through a disciplined process where outputs from the model calculated by the optimiser is further analysed against current market conditions and analysis on portfolio's risk attributes by the fund manager on a daily basis.
Thus, the fund manager combines the value-based quantitative model with his judgment on market fundamentals.
It may occasionally be necessary to change the weight of individual stocks as well as the risk characteristics of the portfolio.
- How did the recent nationalisation of Ashikaga Bank Ltd affect your fund?
There was no impact from the nationalisation of Ashikaga Bank Ltd as we had no exposure to Ashikaga Bank Ltd. In fact, we had low net exposures to the banking sector in our portfolio. We try to maintain a low risk profile in volatile sectors from a risk management perspective.
- How are you finding the sourcing of short borrowing? What are the types of yields currently charged?
We source short borrowing using negotiable margin transactions with brokers. The level ranges from 45-100bp per transaction. We systematically review our brokers to try to maintain our fee below 50bp on average. In addition to the level of lending fees, the turnover rate is managed strictly to maintain a high information ratio. The fund manager's qualitative judgement is a key element in controlling the overall turnover rate of the portfolio.
- Do you foresee any government intervention that would curtail your ability to short-sell?
I do not foresee any government intervention in the near future. The portfolio will not be much influenced by such intervention, as the portfolio is not only highly diversified but also has a wide range of stock holdings.
- What sectors does your model see out performing in 2004? Underperforming?
I see that the chemical sector will outperform in 2004. The underperforming sector may be the machinery sector.
- The lack of liquidity was a major problem for a number of Japan only hedge funds earlier this year. Is this still a concern?
We currently do not have liquidity concerns in managing the fund. Our fund is extremely diversified and has about 300 stocks on each side.
- Currently what are the main obstacles for starting a new hedge fund in Japan and does the government have plans to relax the regulations in 2004?
The following are some of the examples viewed as obstacles for a start-up fund in Japan:
- High regulatory requirements - minimum required capital, reporting and staffing requirements
- Leverage is limited
- Limit on types of transactions
Great growth can be expected in Japan in alternative investments both from an investor as well as a fund manager's perspective. We believe we are in an excellent position to be part of this growth.