With a bleak macroeconomic outlook, the often discussed theme is immigration policy in Japan. Immigration looks to be a compelling measure to tackle the Japanese issue of an ageing and declining population. This may seem like a far off, long term problem, but it may be more acute than people think when you consider the fact that the average age of a car buyer at Nissan Motor is 62 years old. Immigration policy is a well discussed theme, but Takumi Capital provides us with a closer look.
The European Securities and Markets Authority (ESMA) published on 19 July 2016 its final advice to the European Commission (the Commission) on the extension of the marketing passport under the Alternative Investment Fund Managers Directive (AIFMD) to 12 non-EEA countries, including the United States. This note is intended to highlight ESMA’s advice to the Commission and set out the steps firms would need to consider when applying for a third country passport.
Christopher Peck has been in the industry with 16 years of experience in Japan and Singapore and currently focuses on resources and mezzanine debt at Maiora Asset Management.
Eurekahedge was commissioned by AIMA (Japan) to conduct a survey of Japanese investors. The survey itself was conducted from end of March to April 2014 to gauge important insights into market sentiment, investment trends and key regulatory challenges facing the Asian asset management industry, with a particular emphasis on the outlook for Japan. The key findings from this survey are presented in this paper based on responses submitted by a total of 131 survey participants. As for the investment advisors who participated in the Survey, they are collectively advising and/or managing assets in excess of US$3.8 trillion.
Recently in Japan, Islamic finance has been attracting the attention of many potential market players. In December 2010, the Financial Services Agency of Japan officially announced its aim to ’promote the development of an environment for the issuance of Islamic bonds in Japan’ in its action plan for a new growth strategy.
For a number of years, the utilisation of Islamic financing methods and practices has been discussed as one of the next significant trends in the Japanese financial market. This has yet to be the case unfortunately, largely because of the prolonged downturn in Japan's economy following the global financial crisis.
Japanese interest in US-based hedge funds is projected to increase in the years ahead as Japanese institutional investors and pension managers, in particular, seek to achieve more robust portfolio returns. Japan's aging population, pressured by a low domestic interest rate environment and the need to meet obligations, will be among the main drivers of the pensions' investment activity.
In Japan, hedge funds are subject to the highest degree of regulation in Asia, but risk management remains an inscrutable practice. In America, implementation of Basel II is hardly witnessed. In Western Europe, it is not present at all.
Yet it is alive and kicking in Japan, and three of the megabanks command IRB status under the Basel II rules. That means the directors of those banks are supposed to understand the nuances of its risk implications. Assuming that they do understand their risk portfolios might be a case of 'Emperor’s New Clothes'. The knee-jerk reaction to Basel II caused a flight from hedge fund investment last year.
After two consecutive positive months amid rising risk appetites and rallying markets, hedge funds across the board gave back some of these gains in November, with the composite Eurekahedge Hedge Fund Index down 1.6%. A key factor in this market turn was re-emerging concerns over problems in the US housing and subprime markets, as it became apparent that the losses suffered by some of the large global financial firms were far greater than expected. This led to large-scale risk aversion among market participants.
One of the major characteristics of the recent development of Islamic finance is that non-Muslim western financial institutions are becoming more actively involved in this rapidly growing industry. The UK, the US, Germany and other Organization for Economic Cooperation and Development (OECD) countries have major financiers that are expanding Shariah-compliant businesses. Unfortunately, this is not the case with Japan, which has only a small Muslim population at the moment. However, Asia’s largest economy will not be silent for much longer. Islamic finance in Japan has now begun to dawn.
In his book, Only the Paranoid Survive, former Intel Corp President and CEO Andrew Grove highlights what he calls a ‘strategic inflection point’, or ‘a time in the life of a business when its fundamentals are about to change'. These can either herald future success for the firms who adapt, or the imminent demise of those who do not.
MFC Global Investment Management (MFC Global) is the brand name for the diversified investment management group of Canadian-based Manulife Financial Corporation. MFC Global consists of several companies with investment offices in Toronto, Boston, London, Tokyo, Hong Kong and Southeast Asia. It has more than 100 years of experience managing portfolios for The Manufacturers Life Insurance Company, John Hancock Life Insurance Company and other major clients.
Recent high profile cases point to the probability that tougher regulatory constraints will be imposed on hedge funds in the not too distant future. These cases include the fine imposed on GLG and Philip Jabre, by the Financial Services Authority, the Japanese regulator's action against Yoshiaki Murakami’s alleged insider trading and the requirement for hedge funds to register with the Securities and Exchange Commission (SEC), albeit on hold at present.
The environment for activist-oriented strategic investments continues to evolve rapidly in Japan, where vocal shareholders have gained considerable clout vis-à-vis other Japanese corporate stakeholders over the past few years. By far, the biggest change enabling this has been in the mindset of senior managers at publicly-traded companies. As recently as three or four years ago, many executives in Japan spent more time chasing profit or revenue growth than managing their companies’ balance sheets. Nowadays, thanks in part to the role played by activists, concepts such as return on equity (ROE), return on assets (ROA) and return on investment capital (ROIC) are at the forefront of senior managers’ minds. Moreover, leaders of companies with underperforming stocks now know their firms may become takeover targets.
The bursting of Japan’s bubble economy and the ensuing Asian crisis of 1997-98 created an entirely new asset class in Asia: distressed debt. Companies that were once healthy and viable filed for bankruptcy, creating a large investing landscape for specialised investors. Distressed debt arises when a company is experiencing financial difficulty, and has defaulted on its debt obligations. To align the capital structure with repayment capability, the company must reduce debt by either restructuring its balance sheet or by liquidating some of its assets.
Some participants in the Japanese stock market cite significant improvement in Japanese corporate governance as a motive for increased foreign participation. Perhaps, however, the causal relationship is really the reverse, that is, increased foreign ownership of Japan, Inc has forced improvements to corporate governance.
Hedge funds got off to a running start to the year, with the Eurekahedge Hedge Fund Index rising a handsome 3.2% for the month of January. With the exception of Japan, which had to contend with choppy markets intra-month, all the regional indices returned upwards of 3% for the month. Global investors anticipating an end to the Fed tightening cycle in the near term, spurred equity markets across the board onto healthy gains.
October turned out to be a poor month for hedge funds across the board. In a marked departure from the positive to spectacular returns seen in the last five months, almost all the Eurekahedge regional indices took a southward turn. The exceptions were Japanese hedge funds (the Eurekahedge Japan Hedge Fund Index was up an impressive 1.7% for the month), and to a much lesser degree, onshore Latin American hedge funds (whose corresponding index was up 0.6% during the same period). The North American and European indices, on the other hand, registered negative returns of 1.3% and 1.8% respectively.
The Arcus team, consisting of Robert Macrae, Peter Tasker and Mark Pearson, discusses its new long fund, Arcus Japan Fund (AJF).
AJF has returned 15% since inception in March 2005, with an annualised return of 24% and annualised volatility of 14%. The fund currently has US$90 million in assets.
There are many ways for a successful long/short hedge fund manager to generate absolute returns. Some managers are very good stock pickers based on fundamental analysis and visiting hundreds of companies every year; some make excellent timing decisions based on technical analysis without ever visiting a single company; and others manage to combine the two successfully. While much of this depends on the talent and skills of the individual fund manager, one of the most promising ways to achieve absolute returns is to catch and ride on a so-called secular trend.
Last month we wrote in rather uninspired terms about the revaluation of the renminbi. This month's "news" story is much more important.
Only in Japan could the convincing re-establishment of an almost 60-year old political dynasty be called news! But Koizumi now has both a clear mandate in personal terms, and a near-invincible political toolkit, to force real change in Japan.
Hedge fund performance across the globe perked up in June following a mediocre month in May. According to the Eurekahedge Hedge Fund Indices, the top three markets were Europe (+1.76%), Japan (+1.49%) and North America (+1.47%). Comparatively, Japan was down 0.17% in May and Europe was up 0.32% over the same period.
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.
Japan is the world's second largest economy, and second largest stock market. Given their close geographical proximity to Hong Kong, it might be expected that Japanese investors would be major participants in the Hong Kong securities market. In particular, the Mainland China enterprises listed in Hong Kong, with their growth potential, might seem a natural choice for investors from a mature developed country. However, in reality, Japanese investment in the Hong Kong market is far below its potential.
Hachiman Japan Fund is a Japan long/short equity fund that is run by Toru Ueda and Yashwant Bajaj in Tokyo. Toru, CIO, has 16 years' buy-side experience overseeing US$2 billion at Mercury (as head of institutional funds and research) from 1987 to 1997 and US$5 billion at PPM Japan from 1998 to 2001. Yashwant, CFO, has 19 years' Japanese equities sell-side experience and also has experience in equities, CB, listed and unlisted derivatives, having worked with Nikko Securities, Kleinwort Benson, Dresdner Kleinwort Benson and Lehman Brothers.
Asian hedge funds posted their largest gains of the year in November, with a 3.03% gain overall, and a 3-month return of 4.71%. In fact, the gains were the best since mid-2003. The charge was led by the ex-Japan region, which gained 3.93% for November, and emerging markets, which added to this year's excellent returns with their best monthly performance since early 2001. Conversely, a 5% drop in Japanese equities for the month slowed the Eurekahedge Japan Index to a 0.5% gain. Japan's sluggishness reflects poor economic data and a slower-than-expected recovery. In general, most of the gains in the last three months were from currency appreciation due to the declining dollar. Asia's emerging markets continue to be the hot sector and the favourite global play is still long Asian currencies versus a short dollar.
The preferred hedge fund structure for Hong Kong based managers/advisers tends to be an offshore limited liability company. The main factors determining this preference is investor familiarity and that such a vehicle is relatively low risk to the hedge fund manager i.e. it has a separate legal identity distinct from the management functions, and is easy to operate with respect to day to day subscription and redemption of shares. Furthermore, offshore jurisdictions used such as Cayman Islands, British Virgin Islands and Bermuda,are tax neutral.
The hedge fund industry in Japan is currently experiencing an unprecedented period of growth. Aggressive independent fund management utilising advanced alternative investment management techniques specifically designed for Japanese institutional and high net worth investors was difficult to imagine as recently as five years ago. Investment in Japanese markets by foreign capital, once the dominion of "bulge bracket" investment and universal banks, is now equally likely to take place through offshore funds applying a variety of advanced financial strategies to Japanese equity and fixed income markets.
Commodity futures and options are the oldest derivatives products. Producers and consumers need to hedge against fluctuations in the harvest, and even in early times farmers and merchants made informal agreements among themselves for delivery at pre-arranged prices. The first formal futures markets were the rice exchanges in eighteenth century Japan. Today, commodities are vital to the world economy, and the use of commodity futures continues to grow. However, since the introduction of financial futures in the 1970s, their relative contribution to exchange trading has diminished in importance.
Risk management is still a new concept in the alternative investment community, particularly in Japan. Unfortunately, there is no textbook definition of risk management just like there is no textbook definition of corporate management or fund management; which further complicates how risk management is implemented. These terms merely reflect the culture and philosophy of the management team, which uses its skills running a business. Risk management therefore reflects the culture of the company or fund that the management team has already established.
The Japanese stock market has been non-directional and unstable for more than ten years and fully reflects the ailing Japanese economy. Looking around the world, it is hard to find any traditional financial products profiting steadily under this situation. What is an investor to do? Pair-trading is a relative value investment strategy that seeks to minimise market risk and take advantage during such unstable times.
London-based KBC alpha Asset management is the specialist Japan and Asia regional focused fund of funds division of KBC Alternative Investment Management, an arm of KBC Bank & Insurance Holding NV, one of Belgium's leading financial institutions. Neale Safaty, KBC alpha's CIO, has over twenty years experience in the Japanese and Asian capital markets.
The FUJIMAKI JAPAN Macro fund is a Japan focused macro strategy fund. FUJIMAKI JAPAN Co., Ltd. is the investment advisor to the fund.
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. Eurekahedge interviews its fund manager, Kazuyuki Murai.
The total assets invested in hedge funds by Japanese investors at the end of 2002 is estimated to be around US$20.5 billion, which is slightly over 3% of the global investment in hedge funds.
Benjamin Franklin once said "in this world nothing is certain but death and taxes." Unfortunately in recent times in Japan no longer can it be said that taxation is certain. There have been developments in the tax arena over the past couple of years that cause hedge fund managers much concern. This article discusses two of those developments.
The Arcus team, consisting of Robert Macrae, Peter Tasker and Mark Pearson, discuss their latest product with Eurekahedge.
KBC Alpha Asset Management is the Fund of Funds division of KBC Alternative Investment Management. The two key principals, Neale Safaty and David Walter have 20 and 17 years expertise in Japan & Asian equity and equity-linked capital markets that includes broking, risk-management, trading and direct experience in setting up and running Asian hedge funds.
"You can have any colour you like, so long as it's black!" Those famous words, imparted by Henry Ford almost a century ago, defined a time when products were being mass-produced with little regard to differences in the needs and expectations of individual consumer groups. The world at large was viewed as a much more homogeneous place than it is today.
Beleaguered Japanese Prime Minister Junichiro Koizumi marked the second anniversary of his appointment on the 26th April, but there was little celebration in the labyrinths of Japanese politics. Starting off with high ambitions of breaking the mould of the old way of Japanese political wheeling and dealing, he is currently adrift with little support from the notoriously factionalised ruling LDP.
Graeme Sinclair is Head of Japanese Equities at Aberdeen Asset Management Asia Ltd. and runs the Aberdeen Japan Absolute Return Fund, a Japan only equity long/short hedge fund which launched in October 2002. Aberdeen Asia runs approximately US $5 billion in long only assets. It is based in Singapore. Mr. Sinclair wrote the following article on the Japanese markets and the Aberdeen Japan Absolute Return Fund.
The Jade Japan Fund was launched in June 2000 and is managed by Dominic McEwan, who joined Jade in May 2001. He has over 15 years' experience in the Japanese markets, most recently as a director of Bonfield Asset Management, where he was one of the inaugurators of its Japanese funds. Prior to Bonfield, Mr. McEwan was head of Japanese equities at Commerzbank and a senior vice president at Jefferies International.
After the disastrous market conditions in 2000 and the first nine months of 2001 pushed Asian hedge funds down, the last quarter of 2001 proved a nice rebound for the industry. Managers made money throughout the region, from playing the falling yen in Japan (either outright US dollar long or purchasing exporters) and buying bank shares in Korea, to domestic plays in Southeast Asia and Hong Kong/China.
Zaheer runs the LG Asian Plus Fund and has been with LGM since 1995. He has been involved in managing the fund since inception and has taken over full responsibility since June 2000. He is a graduate of Case Western Reserve University and has a MBA from Indiana University.
We asked 16 managers, based around the world and overseeing absolute return Asia Pacific strategies, their views of where is the best location to establish a hedge fund. We gave each of them the same 12 questions (reproduced below), which centered on the investment process and capital raising. Their answers were remarkably similar, suggesting that there may be a clear formula which new, and arguably some established, managers should follow.
It has become apparent in the last few months that Asian focused hedge funds are hot. Sitting in Asia, this is evidenced by the rate at which the more established funds are closing, and the facts that several new funds are being created every week and that a long queue of Asian fund of fund products is in the pipeline. What is not so evident are the underlying causes of this sea change.