The pair plans to start the Alithion Japan Fund on July 1 with 2 billion yen ($22 million) from Tokyo-based trading company Marubeni Corp. and aim to grow assets to about 10 billion over the next year, said Yaku, chief executive officer at Alithion Capital Management Pte in Singapore.
Japan-focused hedge funds are the best performers globally this year, according to Eurekahedge Pte. While many of the hedge funds that focus on the nation base their stock investments on the value and fundamentals of a company, Alithion Japan Fund will aim to profit from taking short-term bets on single securities, the managers said.
“Ex-prop traders generally have far better risk management experience than the average long-short hedge-fund manager,” said Ed Rogers, chief executive officer of Tokyo-based hedge- fund adviser Rogers Investment Advisors Y.K. “It’s absolutely a good time to start entering the market as Japan is still the least crowded hedge-fund market in the world.”
Yaku and Ishizaki have returned 18 percent since February 2008, when they began investing money solely for Marubeni.
Japan-focused managers are making a comeback after their 7.3 percent return last year lagged behind the global average by about a third, according to Eurekahedge. The Eurekahedge Japan Hedge Fund Index has returned 3.9 percent through May, making it the best performing index among the five different regional indexes, according to Eurekahedge. The gain compares with a 1 percent advance by the global hedge fund index.
Yaku, 48, will run the fund along with Ishizaki and Kai Hoshino, 32, also a former proprietary trader at Mizuho in Tokyo.
The fund, which targets an annual return of 10 percent to 15 percent, will invest in Japan’s top 500 companies by market value, taking long and short positions in about 50 to 100 stocks, according to Ishizaki. In a short sale, a trader borrows stock and sells it in the hope it can be bought back later at a cheaper price.
Utilizing the experience as proprietary traders at Mizuho Securities, the brokerage unit of Japan’s second-biggest listed- bank by assets, about half of the fund’s investments will be traded daily, Ishizaki, 38, said. Each holding will not exceed 10 percent of total assets, he said.
“Irrational moves taken by investors in crisis situations create the best opportunity for a trading-oriented fund like ours,” Ishizaki, Alithion’s chief investment officer, said in a telephone interview from Singapore. “We’ve built up our performance and with the backing of Marubeni, we thought this is a good time to start the fund.”
The introduction of a faster trading system, Arrowhead, by the Tokyo Stock Exchange this year will help boost liquidity in the market and attract more investors to Japan, creating more opportunities for Alithion to make bets based on investors’ behavior, Ishizaki said.
Yaku and Ishizaki left Mizuho in July 2006, while Hoshino left in March 2007. They set up Alithion Capital, named after the word to “consider” in Greek, in November 2007, Yaku said.
Deutsche Bank AG is the fund’s prime broker, according to Alithion.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.