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We thought it would be
interesting to compare the returns of the
hedge funds in our database based on their
locations. In this analysis, we examined
a sample of Japanese long/short equity funds.
Analysing the returns data since 1998 shows
that Japan-based long/short equity funds
have been generating almost 50% more returns
than its counterparts in the United States,
Hong Kong, Singapore and Australia. The
returns however are slightly over 3 times
higher than the Japanese long/short equity
funds based in the UK.
Despite that the annualised returns for
Japan-based Japanese funds are slightly
skewed due to the exceptional performance
by a few funds (located in Japan) in the
survey, it is interesting to note that UK-based
Japanese funds clearly lagged behind their
US and Asian counterparts.
|
Head Office Location |
Performance |
Assets(US$m) |
# Funds in Survey |
| Jan 05
to May 05 (%) |
2004 returns
(%) |
2003 returns
(%) |
Annualised
Return (%) 1 |
Annualised
Standard Deviation (%) 1 |
Average |
Total |
| Japan |
5.57 |
8.85 |
7.16 |
18.29 |
7.81 |
185 |
4434 |
24 |
| Asia
ex Japan |
2.03 |
5.28 |
26.39 |
11.52 |
12.27 |
263 |
2628 |
10 |
| United
Kingdom |
1.59 |
3.87 |
9.09 |
5.87 |
8.22 |
446 |
12943 |
29 |
| United
States |
4.13 |
10.04 |
13.25 |
11.22 |
8.33 |
321 |
5131 |
16 |
| 1The
annualised returns and standard deviation
are calculated since their respective
dates of inception |
So how did Japan-based Japanese funds pull
off such stellar performance in comparison
to the non-Japan located funds?
Traditionally, Japanese long/short strategies
have favoured investing long mid/small caps
and short large caps due to the lack of
available research in the former and often
overvalued prices due to overzealous retail
investors in the latter.
Being located outside of Japan means that
it is harder for UK- and US-based Japanese
funds to obtain quality research on mid/small
caps due to distance, different time zones
and language barriers.
Interestingly, US-based Japanese funds
have fared better than their UK peers. We
suspect this is because more US-based funds
are run by Japanese managers who spend more
time travelling to Tokyo and/or have Tokyo-based
research offices.
Japanese assets relative to the risk
adjusted ratio
Another interesting analysis of the Japanese
assets based in Japan and elsewhere gives
a sense of where the money is currently
compared to where most of the returns are.
Clearly, the size of Japan-based assets
compares low with that of UK and the US.
This perhaps explains why being close to
the source of capital matters, as the majority
of investors in Asian funds are based in
London and New York.
However, comparing the average assets in all
of these markets relative to the risk adjusted
ratio indicates that there is a lot of potential
in Japan-based assets. This could possibly
mean a flight of UK-based Japanese assets
into Japan-based or US-based Japanese assets
in the coming few years where investors can
hope for better returns. The downside, of
course, could be more pavement pounding!
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