Japan has become the new favourite destination for Asia’s subdued $400 billion hedge fund sector.
The country’s market has drawn fund launches while other regions suffered closures signalling that wild volatility in August has not derailed a revival in Japan’s capital markets.
Hedge fund liquidations in Asia have outpaced new launches since 2023, mostly due to China’s faltering stock market. However, the number of Japan-focused funds saw a net increase of more than 10 during this period, Preqin data shows.
At least a further five Japan-focused funds have launched or are preparing to debut in the third and fourth quarters of the year, spanning strategies equity long-short to quantitative, according to funds or people familiar with their plans.
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The launches come from both home and abroad and are being well received by investors.
They point to confidence in Japan – long overlooked by hedge funds and a broad swathe of other investors, and lately rattled by the biggest one-day stocks rout since 1987 – and suggest its financial markets are coming back to life after decades on the periphery for many big investors.
“Japan is finally changing in a positive way, with inflation and wage growth,” said Soichi Utsumi, founder of Shinka Capital Management which is launching a Japan equity long-short fund.
“I’ve never seen such big trends in my whole professional life,” said Utsumi, formerly a partner at hedge fund Asia Research & Capital Management Limited.
Japanese equity markets hit all-time highs in July on a wave of foreign interest and a corporate governance reform drive. Interest rates are in positive territory and rising for the first time in many investors’ memories as the economy grows.
Utsumi said his fund will focus on governance change and opportunities in rising interest rates, and advisors say the themes are resonating with investors.
“We’ve seen more interest in Japan-focused managers,” said Jon Caplis, CEO of hedge fund research firm PivotalPath.
Bank of Japan Rate Hike
Japanese markets’ resurgence was dramatically interrupted in early August when a Bank of Japan rate hike and softening US economic data triggered a sudden rise in the yen and collapse in the stock market.
However, the gyrations haven’t deterred the hedge funds from the Japanese market.
Hong Kong’s $700 million ActusRayPartners said it is set to launch a new Japan strategy later this month, targeting to raise $100 million by the end of the year.
The quant fund interpreted the market selloff as a positive as a crowded short bet on the yen has unwound.
Another encouragement is coming from rates, which have been hiked twice this year.
As rates are expected to rise further, “that inevitably makes the market a bit volatile, zombie companies cannot just survive in the end, which is good for the long- short strategy,” said Tetsuo Ochi, CIO at MCP Group, a $2.5 billion alternative investment firm that mainly helps Japanese institutions invest globally.
In August it launched a rare Japan-focused fund of hedge funds and attracted a 10 billion yen ($70 million) investment from Japanese insurer Dai-ichi Life, according to MCP.
- Reuters with additional editing by Sean O’Meara
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