Japan US$2 trillion fund looks to buy smaller hedge funds in Asia

After struggling to attract money, smaller Asian hedge funds may be about to get some relief, courtesy of a US$2 trillion Japanese asset manager.

Japan Post Bank Co.’s investment division is considering backing smaller or newly created Asian hedge funds as it seeks higher returns, said Naohide Une, managing director of the unit that oversees hedge fund allocations. To start with, the bank plans to work with no more than five asset managers or so-called gatekeepers to select funds to invest in, he said.

“There are extremely talented emerging managers in Asia who are having trouble raising money. It is an opportunity for us from the viewpoint of returns,” Une said in an interview in Tokyo. “This opportunity won’t be around forever, so we would like to start putting something together sooner rather than later.”

The regional hedge fund industry could use a deep-pocketed backer.

Investors withdrew $6.3 billion from Asia-based hedge funds in the first six months, cutting assets by about 10 per cent and making them the worst-hit among global peers, according to eVestment, an Atlanta, Georgia-based data provider. The Eurekahedge Asian Hedge Fund Index is on track for its first decline since 2011, down 0.4 per cent this year to July.

Japan Post Bank, which sold shares to the public as part of a three-pronged, $12 billion initial public offering last year, is looking to increase investments in alternative assets after the Bank of Japan adopted a negative interest-rate policy, pushing bond yields below zero.

Japan Post Holdings Co., the banking unit’s parent, said earlier this year it will shift more of its $2.6 trillion investment portfolio to riskier assets such as overseas real estate investment trusts and infrastructure funds, and has begun investing in private equity, to boost profitability.

The bank will prioritise hedge funds that have low correlation with the movement of equity markets as a way to diversify risks, Une said. He declined to say how much money it will allocate.

It may also support emerging managers in private equity, said Tokihiko Shimizu, managing director and head of private markets investment, in the same interview. Supporting new, talented asset managers when they are at the starting stage can translate into higher returns, said Shimizu, who joined Japan Post Bank from the nation’s Government Pension Investment Fund.

“There are some restrictions for pension funds when it comes to investing in funds that have no track record,” said Shimizu. “Because of that, talented individuals who became independent from big name funds can’t raise enough money. We would like to capture that opportunity.”

Une said the pace of hedge fund redemptions will eventually ease, and while the market will remain in an environment of low growth, low yields and high volatility, that could also bring opportunities.

“We would like to invest in stages as we carefully evaluate risks,” he said.