June 23 (Bloomberg) -- Sumitomo Trust Finance (H.K.) Ltd., the asset-management unit of Japan’s fifth-biggest bank, will start a new multi-strategy hedge fund that invests in Japanese stocks, index options, futures and credit-default swaps.

The Tactical Equity Concepts-Japan Fund, also called TEC- Japan, will start June 29 with 10 billion yen ($105 million) of seed money from parent Sumitomo Trust & Banking Co., said Kota Murakami, the Hong Kong-based head of Sumitomo Trust Finance’s investment management group. The fund aims to raise assets to as much as 60 billion yen over the next couple of years, he said.

The TEC-Japan fund, which brings the number of hedge funds managed by Sumitomo Trust Finance to six, will invest in 20 to 30 Japanese stocks and plans to sell Japanese credit-default swaps, stock futures and options as a hedge to maximize returns, Murakami added. Its flagship STB Japan Long-Short Fund I has never had a down year since inception in 2004 and has returned a cumulative 28 percent as of April.

“We wanted to come up with a hedge fund that will allow us to deliver returns in any sort of market environment,” Murakami, 43, said in an interview in Tokyo yesterday. “What we’re seeing now is a mere bear-market rally, and the default rates are going go up again before we see any full-fledged recovery.”

Market Recovery

Hedge funds, which posted their worst year in 2008, are starting to attract money from investors again as they outperform the global stock-market rally. Global hedge fund assets rose by $30.3 billion to $1.32 trillion in May, the first increase in 11 months, according to data from Singapore-based Eurekahedge Pte.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

The TEC-Japan fund is starting as Japan’s Nikkei 225 Stock Average has gained more than 30 percent since plunging to its lowest since October 1982 in March, amid signs the global economy may be recovering. The benchmark slid a record 42 percent in 2008.

The fund will take investment advice from the parent company’s pension fund investment division as well as the proprietary investment unit, Murakami said.

The fund, which is waiting for approval from Japan’s financial regulator, will be managing the parent bank’s proprietary money and plans to sell to institutional investors in Japan and abroad, Murakami said.

The Eurekahedge Multi-Strategy Hedge Fund Index has returned 11 percent this year through May, according to the Singapore-based data provider. The index fell 9.3 percent in 2008, outperforming the record 12 percent slide by the Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds globally.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: June 22, 2009 21:32 EDT