Q&A with Richard Okuno, Okuno & Associates
Okuno & Associates is a consulting and marketing firm specializing in alternative investments. It provides start-up and capital introduction services for global asset managers, including hedge funds, as well as sourcing Japanese transactions for private equity firms.
1. How is the hedge fund environment in Japan with respect to service providers and raising of capital?
While Japan has historically lacked infrastructure for start-up funds, this is beginning to change. Deregulation has eased licensing requirements, the popularity of the asset class has encouraged entrepreneurial fund managers and a growing number of service providers have arrived. Although Japan-focused hedge funds can be found in a wide variety of locations around the world, assets under management in Tokyo have reached 6 billion US dollars, surpassing every other money center, including London and New York.
b) Prime brokerage in Japan – what are the differences in commitment between foreign and domestic institutions?
One of the key service providers are prime brokers. Hedge funds are an attractive and growing client base for global investment banks and fund administrators. Among the brokers, Goldman Sachs, Morgan Stanley and Deutsche Bank have the largest market share. Domestic institutions have yet to develop the systems, global reach and longstanding relationships that characterize this business. Structurally, Japan is attractive because it has a deep, liquid market where it is relatively easy to borrow stock, use derivatives and pursue leverage enhanced trading strategies.
c) What recent changes do you see in acceptance of hedge funds as a viable investment for institutions?
Given the long decline in Japanese asset prices, absolute return strategies are increasingly popular among local institutions. Japanese investments in hedge funds are estimated to be between 17 and 20 billion US dollars, mostly in the form of fund-of-funds. This is still a small proportion of the 600 billion US dollar hedge fund industry.
d) Investable Hedge Fund Index - is this something that will grow in Japan in the near future?
There are a number of hedge fund indices for Japan and Asia, the most notable being ABN Amro Eurakahedge and Bank of Bermuda Asiahedge. Credit Suisse Asset Management has been marketing a series of investable fund-of-funds to Japanese institutions which track the global CSFB Tremont index.
e) What are the major concerns among institutional investors regarding hedge funds?
When selecting hedge funds, Japanese institutional investors are most concerned with transparency, liquidity and track record. They require a substantial amount of disclosure, prefer frequent redemption periods and insist on a minimum 18 to 24 month performance history.
f) What are the main obstacles for start-ups in Tokyo?
One of the main obstacles for start-up hedge funds in Japan is their inability to raise initial funds locally. Most start-ups get seeded by US and European investors. Only after having posted positive performance for a year and a half to two years will a Japanese institution consider an investment. There is also anecdotal evidence that institutions here are reluctant to invest in funds managed by Japanese nationals and prefer to invest with those who have a Western pedigree.
g) Where does future hedge fund growth in Japan appear more likely?
Most Japanese investment in hedge funds will continue to flow into fund-of-funds. There is some evidence, though, that the larger more sophisticated institutions are reducing their fund-of-funds exposure and doing their own due diligence on single managers.
Richard Okuno Tel: +81 3 3449 2591
