Hayate Atom Multi Strategy fund has returned 0.9 percent since former Goldman Sachs Group Inc. (GS) trader Masaru Matsumoto started the Japan focused hedge fund four days after the nation’s strongest earthquake on record.
The fund, which invests in stocks and futures indexes based on a mathematical model, started with about $4 million from domestic and overseas investors on March 15, said Matsumoto, chief executive officer at Atom Investment Co. With a maximum capacity of about 20 billion yen ($239 million), the fund aims to raise about 2 billion yen over the next six months, he said.
Matsumoto began his fund a month ago, on the day Japanese stocks suffered their third-worst daily decline in history as Tokyo Electric Power Co. confirmed an explosion at its nuclear reactor. The fund bases investments on an algorithmic model that Matsumoto developed and which takes into account market moves, fundamental analysis, news and “noise” factors that determine stock moves, he said.
“This is a good time to start,” said Matsumoto, 35, who previously traded equities and was the chief trader of yen interest rate option trading at Goldman Sachs in Tokyo. “We lowered our risks to adjust to this crisis condition, but our fund depends on a model that eliminates any human emotions, so that has helped in a market like this.”
Matsumoto joins a breed of managers who are setting up their own shops in Asia after working at global financial firms. More than 150 funds have started in the first quarter of this year, according to Eurekahedge Pte, a Singapore-based industry data provider. The Eurekahedge Japan Hedge Fund Index declined 1.1 percent in March, based on preliminary figures.
Atom fund -- named after the Japanese animation character Astro Boy, or Mighty Atom, because Matsumoto is a member of Japan’s national team for the world arm wrestling championships -- posted average annual returns of 61.3 percent based on simulated trading from August 2004 through March 2010, according to Matsumoto.
The fund had an annual Sharpe ratio, a formula which analyzes whether investments offer enough return to offset their risks, of 2.25 during the first month of trading, said Matsumoto. The greater a fund’s Sharpe ratio, the better its risk-adjusted performance.
Matsumoto started his fund four days after the earthquake and ensuing tsunami that led to more than 28,000 missing or dead and crippled nuclear plants in Fukushima prefecture, causing the worst nuclear disaster since 1986 in Chernobyl.
On the day the fund that employs a long-short equity strategy started, the Nikkei 225 (NKY) Stock Average plunged as much as 14 percent, its biggest intraday slide since the stock market crash of October 1987, on record trading volume. In a short sale, a trader borrows stock and sells it in the hope it can be bought back later at a cheaper price.
The Nikkei today declined 0.7 percent to 9591.52, bringing its decline since the March 11 temblor to 8.1 percent.
To counter the slide and turbulence in the market, the fund limited investments and made adjustments to the algorithm model by reducing or eliminating some industries affected by the nuclear and radiation disaster, such as utilities and fisheries stocks, Matsumoto said.
The fund focuses on about 200 highly traded stocks, Nikkei and Topix index futures. It currently invests in about 50 positions, instead of about 30 as usual, to diversify its risk, Matsumoto said.
“I know very well the weakness for these models, so I had to make some tweaks after the crisis,” Matsumoto said. “There is no such historic data for this sort of event, and the model strictly picks the investments based on historical data, so the more it gathers information, the more accurate the investment picks become.”
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