Ex-Morgan Stanley Manager to Start Japan Stocks Hedge Fund

Tsukasa Shimoda, a former fund manager at Morgan Stanley Asset & Investment Trust Management Co., will start a Japan-focused hedge fund amid increased appetite for the world’s second-largest equity market.

The UMJ Galleyla Fund will start on April 1 with about 1 billion yen ($11 million) in initial capital including money from an overseas fund-of-hedge-funds, said Shimoda, who runs the strategy. The long-short equity fund will bet on rising and falling stocks in Japan and will target an annual return of 15 percent to 25 percent, he said.

Japan-focused hedge funds have had the best start to the year on record, according to Eurekahedge Pte, after Prime Minister Shinzo Abe pledged to boost the world’s third-largest economy spurring stock gains and weakening the yen. Overseas investors have stepped up purchases of Japanese equities, including a record net 1.02 trillion yen in the week to March 8, data compiled by the Tokyo Stock Exchange showed.

“There is a strong upward trend in Japan right now,” Shimoda, 43, said in an interview in Tokyo yesterday. “The fact the Japanese stock market is under the spotlight is a positive for hedge funds.”

Shimoda left Morgan Stanley in 2009 and has managed his own money for the past three years to build a track record and set up his own company Galleyla Investment Co. in Tokyo, he said. Between February 2010 and January this year, Shimoda achieved a return of 91 percent managing his own money and employing the strategy that he will use for the new fund, according to unofficial figures he compiled.

‘Last Chance’

The Eurekahedge Japan Hedge Fund Index, which tracks about 80 funds, has gained 7 percent in the first two months of this year, more than an average return of 6.3 percent recorded for all of 2012. About 50 funds have started globally in the first two months of the year, according to Singapore-based data provider Eurekahedge.

The benchmark Topix index has surged more than 40 percent since Nov. 14, when the elections that returned Abe to power the following month were announced.

“Japan is back, at least in the short term,” said Thomas Granger, partner at Walkers (Singapore) LLP, which provides offshore legal services to investment funds. “Whilst Prime Minister Abe’s moves are generally seen as a last chance to revive the Japanese economy, the rally in Japanese stocks and the positive results posted by Japanese hedge funds since December have very much put Japan back on the radar for investors.”

Technical, Fundamental

The fund will invest in about 60 to 150 stocks and plans to stop taking new money once it reaches about 20 billion yen, Shimoda said. It will use a combination of technical and fundamental analysis, he said. Shimoda’s Galleyla will be the investment advisory firm for the fund, while Tokyo-based United Managers Japan Inc. will act as the investment manager, he said.

Shimoda said he will combine technical and fundamental analysis after learning a lesson when he managed a Japanese stock fund focused on smaller companies at Morgan Stanley. The fund lost money when the collapse of Livedoor Co. for fabricating profits sparked concerns about the finances of smaller Japanese companies in 2006, sending their shares lower and producing a loss for his fund.

“I was too focused on the fact that many of the small-cap stocks were cheap based on their fundamentals,” Shimoda said. “I should have looked at the bigger trend in the market, so I am determined to utilize what I learned from my mistake back then.”

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

To contact the editor responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net

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