Former traders at Millennium Management LLC plan to start new hedge funds that will mainly invest in Japanese equities to capture demand as the nation’s equities rebound from the worst year since 2008.
The Japan-focused Terra Grove Japan Fund and the Terra Grove Pan Asian fund, which will invest in Japan, Hong Kong, Australia, South Korea and Taiwan, will start in May with total capital of about $25 million, said Tetsuo Ochi, chief executive officer of Hong Kong-based MCP Asset Management Co., the investment manager. Both funds aim to raise about $150 million each in about a year, after which they will stop taking money from clients until they enhance the trading models, Ochi said.
Japanese stocks posted the best quarterly start to the year since 1988 after dropping 17 percent in 2011. Masakatsu Hayashi and three others joined MCP in March after leaving the Singapore office of Millennium, the $15 billion hedge fund founded by Israel Englander.
“Many overseas investors are underweight Japan, and many bigger funds are already closed to new investors, so we’re seeing some interest from those who want to have a Japan exposure,” Ochi, whose firm oversees about $6 billion in assets, said in a telephone interview.
The funds will employ a so-called equity long-short strategy, which seeks to profit from rising and falling prices, Ochi said. The managers will focus on trading the positions frequently, with average turnover of about 10 percent a day and using their own statistical arbitrage models, he said. The Japan fund will target annual returns of about 15 percent and the pan-Asian fund will aim for 20 percent, Ochi said.
Asian hedge funds struggled last year amid an increase in volatility in markets as concerns over the European sovereign debt crisis and China’s growth prospects weighed on investors.
Asia-focused funds tracked by Eurekahedge Pte oversaw $124.1 billion at the end of last year, 29 percent less than the peak in 2007. They lost an average 8.4 percent in 2011, underperforming the 4.1 percent loss for hedge funds globally, according to Eurekahedge indexes.
The new funds start as the industry recovers from news that AIJ Investment Advisors Co., which offered hedge-fund strategies, allegedly lost more than $1 billion of clients’ money, which were mostly smaller Japanese pensions.
“We’re still hearing that the AIJ incident is more of an isolated case, though money flow may stall for a bit,” Ochi said. “Millennium is a well-established firm, so there are expectations that these guys will do well.”
Goldman Sachs Group Inc. and Deutsche Bank AG will be prime brokers of the funds, according to Ochi. Prime brokers provide services such as stock and cash lending, and trade clearing for hedge funds.
Hayashi, who worked as a fund manager at Millennium in Singapore, previously worked as the head of statistical arbitrage in Asia at Societe Generale SA in Tokyo. He’s joined by Akira Suzuki, Atsushi Kiyono and Kohei Hayashi, all from Millennium Capital Management (Singapore) Pte, Ochi said.
Englander, who worked as a floor broker on the American Stock Exchange, founded New York-based Millennium in 1989 with $35 million. It employs about 1,000 people, including more than 120 investment managers, according to the firm’s website.
Separately, MCP Asset said it has signed a memorandum of understanding on a strategic alliance with South Korea’s Woori Asset Management as part of its effort to expand. Under the agreement, MCP and Woori will jointly develop alternative investment products including hedge funds for Woori’s clients.