Jeffrey Yap, former head of Asian fixed-income trading at a unit of Mizuho Financial Group Inc., plans to start his own credit-focused hedge fund in Hong Kong.
Yap, who worked for Mizuho Securities Asia Ltd. until May, will be joined at Ark One Ltd. by two other founding partners he declined to identify. They plan to open the fund to investors in mid-August, pending license approval by the city’s Securities and Futures Commission, he said in an interview in Hong Kong yesterday.
Yap is the latest credit trader to start a fund amid record debt sales in the region spurred by low interest rates and yield premiums for risky borrowers, combined with regulatory relaxation. Equity hedge funds still account for 71 percent of regional industry assets, compared to 27 percent globally, according to Chicago-based Hedge Fund Research Inc.
“We’re seeing the need for more diversified Asian home-grown credit hedge funds as the Asian fixed-income markets liberalizes further,” said Yap, 37.
An Asia-based institution has committed an initial $50 million toward the fund, which will invest in public and private credit in the region with a focus on China, Yap said. The institution has the option of investing another $50 million over the first 12 months, he added, declining to identify it citing a confidentiality agreement.
Yap plans to raise $250 million for the fund by the end of its first year, inclusive of the money from the institution.
As much as half of the fund’s investment may be in China, Yap said.
Dim Sum Bonds
Asian governments and companies outside of Japan have raised $1.7 trillion through bond sales since the beginning of 2011, more than the previous nine years combined, according to data compiled by Bloomberg.
Dim Sum bond sales fetched 174.3 billion yuan ($28.4 billion) so far this year, more than previous annual figures since records began in 2008, according to data compiled by Bloomberg. China has encouraged the sales of such yuan-denominated bonds in Hong Kong as part of a move to push for international use of its currency.
Asia fixed-income returned 13 percent last year, the third-best-performing hedge-fund strategy among nine tracked by Singapore-based data provider Eurekahedge Pte.
About one-third of Ark One’s multistrategy fund’s investments will be in private credit, such as pre-initial public offering or asset-backed financing for companies, Yap said.
The fund will be able to invest in both hard-currency bonds sold internationally by Asian governments, agencies and companies and those issued in domestic markets in local currencies, he said.
Its public bond investments will employ strategies including long-short credit, and relative value, such as exploiting the pricing differences between the domestic and international bonds of the same companies.
It will also engage in convertible bond and capital structure arbitrage, which seeks to profit from pricing gaps between the same issuer’s convertible bond, stock, various debt of different seniorities and maturities.
Yap, as chief investment officer, will focus on the public bond investments. One of the two other founding partners will oversee private-credit investments, he said.
Before joining Mizuho, the third-largest Japanese bank by market value, Yap ran credit investment for Singapore-based macro hedge-fund manager JL Capital Pte between 2007 and 2008.