Albert Saporta is AIM&R's founding partner and has
17 years' experience in global financial markets. The Firm
has a team of 5 professionals with offices in Geneva and San
Francisco. Before starting AIM&R, Mr. Saporta worked for
IFM, UBS Securities, Merrill Lynch and Paribas. He currently
runs two hedge funds, the SOG Fund (global multi-strategy
arbitrage) and SOGAsia. The SOGAsia fund is an Asia including
Japan, multi-strategy arbitrage fund. It employs structure
arbitrage, closed-end fund arbitrage, pair trading, merger
arbitrage and event driven strategies. The SOGAsia Fund was
launched in July 2002 and was +1.4% for 2002. Mr. Saporta
is based in Geneva.
Interview with Albert Saporta
- The SOGAsia Fund has a strict stop-loss of 3% maximum
drawdown of NAV. How did the risk controls work during Henderson
Land's failed cash takeover of Henderson Investment in January?
In the case of a 3% drawdown, the fund must be de-leveraged.
However, at that time, SOGAsia was actually underleveraged,
and therefore we did not have to reduce overall exposures.
That being said, there are also individual loss limits,
and in the case of Henderson Investment, that limit was
reached on the first day of trading after the negative
shareholders vote. As such, 2/3 of the position was closed
in the first 2 days. We decided to stay with 1/3 of the
position and re-hedged it with a short position in HK
& China Gas, Henderson's largest holding. This had
been our original position prior to the takeover bid.
By the end of January, we had reclaimed about 25% of the
loss, and the rest of the position was closed.
- Is the focus of the Fund predominantly Japan? How have
arbitrage opportunities been in Japan since July 2002? How
do you see opportunities for 2003?
The focus is not predominantly Japan and really depends
on opportunities. That being said, since Japan is a much
larger market than the rest of Asia as a whole, we tend
to be more concentrated in Japan (at present it is 60%
of the Fund). The Fund also has a Yen class which only
invests in Japan.
Arbitrage opportunities have been plentiful in Japan.
Since the launch of the fund, SOGAsia has been successfully
involved in a dozen of Japanese merger arbitrage deals.
Going forward, we think deal flow will continue to increase.
In particular there will be continuous deal flows from
parent companies buying their subsidiaries. Also we expect
foreign buyers to be active. In addition to merger arbitrage,
we have been active in holding company/stubs arbitrage
strategies, as well as utilities pairs trading. Japan
provides a fertile ground for such strategies.
Do you think that the recent merger between Konica
and Minolta is the start of a "big bang" in
Japanese M&A activity?
It's an industrial deal amongst many others. You're seeing
mergers in all kinds of industries. It started with financials
(banks, insurance). Now is the time for industrial restructurings
and mergers (Konica/Minolta but also NKK/Kawasaki Steel
or Mitsui/Sumitomo Chemical, for example). It seems that
Japan is slowly waking up to the need to rationalize.
At the same time, I think that the majority of deals in
the near future will continue to be parents/subsidiaries.
Has the decrease in liquidity throughout Asia been
a restraint on arbitrage strategies?
We find liquidity to be less of a problem in Asia and
Japan than in Europe.
- Two of the Fund's largest positions are in Japan capital
structure arbitrage: long Ito Yokado/short 7-11 and long
Renault/short Nissan. What is the current status of these
trades and have they worked as planned?
The Ito Yokado trade has been quite successful and we
have exited part of it. On the other hand, the Renault/Nissan
trade is losing money.
The advisory company is based in Geneva; what is
the current appetite in the city for hedge funds with
an Asian strategy?
We have not really started marketing SOGAsia, which
is mainly proprietary capital. We also do very little
marketing in Europe and most of our investors are US based.
- You have stated that one of the reasons for launching
the Asia only hedge fund was that the Asian trades in AIMR's
global fund (SOG) were the best performers. Is this still
Best performing strategies in SOG (global product) have
been the US and Japan books. Since September 1999 (launch
of SOG.), Japan made more than 60% gross return on capital
compared to a loss of more than 45% in the TOPIX Index.
Last year, although SOG was down, gross return on capital
on SOG's Japan book was about 10%.
- What are you views on two arbitrage strategies that
you have not been principally involved in: CB arbitrage
and ADR/local share arbitrage? Are they relevant in Asia?
We don't do CB arbitrage because we have no expertise.
ADR/local arbitrage does come under our mandate, but we
haven't found any compelling trades so far since the launch
of SOGAsia. We were involved in a few such trades in SOG.
- It is commonly viewed that arbitrage strategies have
to leverage up to the high single digits in order to make
money off some very small spreads. Is this the case in
SOGAsia's current leverage is 0.8, i.e. we are un-leveraged.
SOG likewise is rarely leveraged and when it is, it is
fairly conservative (1.5-2 times max). That being said,
we feel leverage could be higher in Japan's merger arbitrage
strategies as deals have a much smaller probability of