- Nezu Asia plans to apply for a full license in Japan
- Julian Robertson of Tiger invested $50 million in Nezu in 2011
The Asia-focused hedge fund group headed by Tiger Management alumnus David Snoddy has increased assets to more than $2 billion by tapping U.S. investors.
Snoddy, 48, who ran the Tokyo office for Julian Robertson’s Tiger before setting up Nezu Asia Capital Management in 2000, moved to New York in 2010 and raised cash from investors including his former boss, he said. The company now has 12 fund managers and is about to seek a full license in Japan.
Nezu Asia is among hedge funds run by managers who once worked for Robertson, known in the industry as Tiger cubs. Tiger posted market-beating average annual returns of 32 percent from 1980 to mid-1998, before handing back clients’ money in 2000 after losses and investor redemptions caused assets to drop. Snoddy’s decision to return to North America to seek capital shows the importance of the region for Asian hedge funds seeking to emulate their U.S. peers in size.
“It’s really since I moved to New York,” Snoddy, managing partner at Nezu Asia, said in an interview in Tokyo. “That really made a big difference. It’s been a steady increase for several years.”
The company’s main funds include the Nezu Asia Fund, Nezu Master Fund, Nezu Japan Fund and Nezu Cyclicals Fund, all of which pursue long-short strategies. Snoddy favors an investing approach called growth at a reasonable price, or GARP, focusing on companies that generate free cash flow to finance their own growth. He learned the style when working at small-cap investor Wanger Asset Management in the mid-1990s, he says, but nowadays tends to avoid smaller stocks. Snoddy’s picks include Nippon Telegraph & Telephone Corp. and Daito Trust Construction Co., he said.
Snoddy returned to the U.S. partly because investors became less willing to visit Japan to meet hedge fund managers, he said. Even before the financial crisis, the securities scandal at Livedoor Inc. and arrest of its founder Takafumi Horie in 2006 had made the country less attractive.
“It made fundraising very difficult, just because people didn’t turn up,” he said. “We felt we needed some kind of North American presence to target North American investors.”
While Nezu Asia is headquartered in Hong Kong and also has an office in Singapore, the fund has a strong Japan connection. Snoddy, a fluent Japanese speaker, named the company after a museum near its first offices in Tokyo. The group is working on an application for a discretionary investment management, or DIM, license in Japan after hiring a local compliance officer, a requirement in the country. At the same time, it will change the name of its local unit, Speedwell K.K., making it a Nezu-branded entity.
Having full accreditation will please local investors and enable fund managers to run money from the country, according to Snoddy. All of Nezu’s managers previously worked as analysts for Snoddy or one of his analysts, he said.
The Nezu Asia Fund posted a compound annualized return of 9.9 percent from inception in October 2000 through April 29. Snoddy, who also previously worked for the Soros Fund in Japan, says 2016 has been challenging so far.
“It’s not been a great year,” he said. “Most of the things we have are down single-digits. A couple are up a little. But while it’s been a pretty crazy five months, I have confidence that the process will bring us through as it has before.”
The global hedge fund industry lost $15.1 billion of assets to net investor withdrawals in the last quarter, the highest capital outflows since the second quarter of 2009, according to Chicago-based Hedge Fund Research Inc.
Snoddy first met Robertson in 1992 when he was working as a Japanese banks analyst at Jardine Fleming Securities and Robertson wanted to short the stocks. He joined Tiger seven years later, not long before Tiger returned money to investors. Robertson seeded Nezu Asia with $50 million in 2011, for a low-volatility version of Snoddy’s strategies called Tiger Nezu. Snoddy now operates from Tiger’s Park Avenue offices in New York.
Asia-Pacific hedge funds oversaw $159 billion as of November, according to Preqin Ltd., a tiny portion of the roughly $3 trillion invested globally in the industry. Just 94 of the world’s 15,438 hedge funds called Japan home at the end of last year, Preqin said, even though the nation’s bond and stock markets rank No. 2 and No. 3 respectively in size.
Snoddy says he’s hoping to get a full license for Japan later this year and may use it to hire locally.
“It will give us the ability to take people at an earlier stage of their career,” he said. “It will also mean that for those people who for family reasons or whatever don’t want to live in New York or Singapore or Hong Kong, being fully licensed means that they can run money from here.”