Curtis Freeze's Wildly Successful Hedge FundBy and
Japan often gets overshadowed by economic powerhouse China, but consider this: Curtis Freeze posted a 210 percent return last year at his Shareholders' Consensus hedge fund, which invests in Japanese stocks and bonds. That's a remarkable comeback for the fund, which fell 82 percent in 2009, and for Freeze's Honolulu-based firm Prospect Asset Management, which has seen its assets under management plummet from more than $2 billion, including real estate holdings, to $280 million in just four years.
The Shareholders' Consensus Fund, with assets of $15 million, trounced the average Japan hedge fund's 8.3 percent return and notched the second-best return of all hedge funds worldwide last year, according to Eurekahedge, a Singapore-based researcher that tracks 6,734 funds. The top performer was Precision FX, a currency fund that returned 221 percent. Freeze hopes his success in 2010 helps him attract $85 million in additional investments over the next 18 months. "A near-death experience" is how he describes his losses. "Having rebuilt our track record," he says, "now we're ready to start marketing again."
A native New Yorker, Freeze, 48, arrived in Japan 30 years ago as a Mormon missionary. He began his investment career at Nikko Securities (now Nikko Cordial Securities) in 1988, just before Japan's bubble economy burst, and worked at two other financial firms before setting up Prospect Asset Management in 1994. Along with the Consensus fund, launched in 2005, Freeze manages the Prospect Japan Fund and individual accounts. He loaded up on Tokyo land and residential buildings starting in 2002, when Japan was emerging from its third recession in a decade. The collapse of Lehman Brothers and the onset of the global credit crisis in 2008 sent Tokyo property prices plummeting, and the Consensus fund took a severe hit. In response, Freeze diversified. The fund now has about a third of its assets in property-related investments, he says, down from 90 percent in 2007. "One thing we learned was to not fall in love with property," says Freeze. "We're now more opportunistic."
The Consensus fund focuses on companies with a market value of $100 million to $1 billion that don't have a lot of analyst coverage. It profited last year from stakes in niche companies such as Zuiko, an Osaka-based manufacturer of diaper-making machinery that is benefiting from rising demand for disposable diapers in Asia. Investments in distressed debt, such as that of consumer finance companies Takefuji and Orix, helped the fund's performance as well.
With a few investments, Freeze has pursued an activist strategy. Last year the fund invested in Gro-bels, a Tokyo-based property developer. He used his stake to vote himself in as president of the company in June. Freeze says he has been able to use his connections in the financial industry to develop new sources of funding for the company. The stock has doubled since he bought it. Freeze recognizes that his skills as a stockpicker aren't enough to attract investors. "My strength is I've always focused on Japan and, of course, that's my weakness, too," he says. "When Japan goes out of favor like it did for a while, there is no interest in what I'm doing, but now people are coming back to Japan....I'm not embarrassed to say I'm a Japan specialist."
The bottom line: Having broadened his focus beyond property investments that suffered in the financial crisis, Freeze is enjoying a remarkable comeback.