Highbridge Alumnus’s Asian Hedge Fund Trails Japan Rally

Arena Capital Offshore Fund, a Japan-focused hedge fund run by Highbridge Capital Management LLC alumnus Toby Bartlett, trailed its peers even as the nation’s stocks surged to the highest since 2008.

The $44 million hedge fund, backed by a division of Man Group Plc, returned 2.6 percent this year through April, according to its April newsletter to investors seen by Bloomberg News. This year’s gain compares with the 8.8 percent return by the Eurekahedge Asia Hedge Fund Index and the 19 percent gain by the index that tracks Japan-focused funds.

Japan’s benchmark Nikkei 225 Stock Average surged last month to the highest since June 2008 as Prime Minister Shinzo Abe and the Bank of Japan expanded money supply to beat deflation, weakening the yen and boosting earnings of exporters. The fund, which employs a market-neutral strategy that seeks to profit regardless of market directions, is focused on risk-adjusted returns favored by institutional investors as a performance measure, said Arena Capital Management Ltd.’s Chief Investment Officer Bartlett.

“There is ample demand for market-neutral hedge funds,” he said in an e-mailed response, citing the recent gain in Japanese stocks. “Considering the large directional move in the market year-to-date, we believe that low-volatility market-neutral strategies are an even more attractive option for investors.” He declined to comment on the fund’s specific performance, citing confidentiality agreement with investors.

‘Long Japan’

The Nikkei 225 has surged 70 percent since the end of September, closing above 15,000 yesterday for the first time since 2007, spurring concerns that the gains may have been too fast. The benchmark fell 1.1 percent today.

“The people that we talk to seem to be more interested in being long Japan,” said Stephane Pizzo, managing partner of Singapore-based investment adviser Lotus Peak Capital Pte. “Japan is going through its own quantitative easing exercise. They’re flooding the market with cash and are going to push the market higher.”

More than three in five investors in a May 14 Bloomberg poll of subscribers see the Nikkei 225 rise over the next six months, trumping the 16 percent expecting it to fall. The investors, analysts and traders surveyed ranked Japan the second-most-likely country to offer the best opportunities over the coming year, after the U.S.

The Arena fund, which began trading in October, lost 0.3 percent in its first three months of trading.

Japan Bets

The fund, which was 100 percent invested in Japan at the end of April, doesn’t take a view on the market or industries, minimizing such risks by trading buckets of related stocks, according to the newsletter. Net exposure, the difference between its bets on rising and falling stocks, was below 2 percent, the newsletter showed.

It targets mid-teen annual returns and invests in liquid stocks mainly in Japan and North Asia domestic-demand-related industries, the newsletter said.

Man Group’s FRM Capital Advisors Ltd. division invested $25 million in the Arena fund, Patric de Gentile-Williams, FRM’s head of seeding, said in an e-mail in January.

Bartlett was an Asian equities fund manager at Highbridge between 2009 and 2011, focusing on consumer-related companies, according to an FRM Capital Advisors statement in January. He worked for Citadel LLC between 2007 and 2009 as a fund manager running Japan-focused stock investments.

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