While hedge funds have been virtually stampeding out of Japan for the last few years, DE Shaw, the $24bn hedge fund founded by computer scientist David Shaw, is set to open offices in Tokyo as well as Shanghai, in a push to expand its Asian operations.
The group’s Shanghai office, according to the FT, will mark its first expansion into mainland China, with a team of private equity analysts focusing on what the firm describes as “investment opportunities”, including financial research and facilitating relationships with portfolio companies. The Tokyo office, meanwhile, will focus more on investors in Japan, including providing marketing and account management services.
The two new Asian offices come several years after DE Shaw opened a Hong Kong office in 2007 to focus on Chinese private equity opportunities, and set up in India. If the group’s earlier Asian moves are anything to go by – DE Shaw’s Indian operations are now its largest base outside the US, employing about 700 people in the country – the China and Japan offices could have a rosy future.
Indeed, several other large hedge funds are now looking to beef up their regional presence, including GLG, Moore Capital and Soros Fund Management which are all planning to open Asian offices, adds the FT.
For now, however, DE Shaw insists the new Japan and China operations will remain narrow in scope and not comparable in any way with its substantial Indian business.
Even so, opening anything in Japan – amid the recent steady exodus of foreign funds – looks to be a counter-intuitive proposition. As many have complained, regulations on the alternative investment industry are more onerous than ever, taxes are unrelentingly high and margins on equities bets are often depressingly slim.
Just to reinforce that view, here, courtesy of EurekaHedge, is a rather striking snapshot of hedge fund presence – both in terms of assets under management and numbers of hedge funds – in the main Asian centres.
(Note that apart from assets under management, the actual number of hedge funds operating in Japan is omitted as many hedge fund groups offering Japan-focused funds are based outside the country – largely due to regulations and taxes that deter funds from putting people on the ground in Tokyo)
But in the eyes of some Japan watchers, DE Shaw’s Tokyo move – even if small – suggests that perhaps, just perhaps, Japan is looking oversold.
As Richard Armstrong of hedge fund consultancy Eureka Capital Partners told us on Tuesday:
There has been increasing interest in Japan lately because it has been so out of favour for the last four to five years
Of course, he notes, there is also a seasonal factor, with a general uptick of investor interest in Japan inthe first quarter of the year, which tends to dissipate over the second quarter.
Right now, says Armstrong, there is a “huge surge of start-up interest” driving a crop of new hedge funds in Asia – but most of these are setting up in Singapore and Hong Kong.
Meanwhile, EurekaHedge in a preliminary report issued on Tuesday found that hedge funds overall returned to positive territory in February, up 0.52 per cent after being marginally down in January.
Geographically speaking, hedge fund returns across most regions were marginally positive for February, although early reports showed that North American managers, who make up 65 per cent of all hedge funds globally, posted gains of 1.41 per cent, adds EurekaHedge, explaining:
Regional managers capitalised on the marked improvements in market sentiment on the back of some strong earnings reports, positive movements in the US dollar and commodities as well as improved manufacturing data and the Fed’s decision to maintain low interest rates.
As for emerging markets and even Japan: Latin American funds were also positive with a 0.48 per cent returns in February while Asia ex-Japan and Japan funds returned nominally positive performances. Not surprisingly, problems in the eurozone led to negative results by the region’s managers, who were down 0.66 per cent in February as the euro weakened amid speculation of Greece’s sovereign debt default.
Asia, in that context, is looking like a safe – and potentially lucrative – haven.
Related links:
DE Shaw broadens Asian reach – FT
In-depth report: Hedge funds – FT