Ex-UBS Bankers’ New Japan Hedge Fund Gains 14% Since July Start

By Tomoko Yamazaki and Komaki Ito

Aug. 31 (Bloomberg) -- Akito Fund, a Japan-focused hedge fund set up by former UBS AG bankers, returned 14 percent since its July start, beating benchmarks on investments in smaller companies including Geo Corp. and Yellow Hat Ltd.

Koichiro Yamaguchi and Tetsuya Hamano, who formerly worked at UBS Securities Japan Ltd. and various hedge funds, in March set up Akito Capital Co., which advises the Cayman Island-based fund. The fund started on July 24 with initial capital of 1.4 billion yen ($15 million) and has maximum capacity of about 30 billion yen, according to Yamaguchi.

Akito’s entry to the Japanese hedge fund market, estimated at about $13 billion at the end of July, comes as large banks and investment funds scale back trading amid the worst market rout since the Great Depression. Based on simulation of its trading strategy, the fund had gross returns of about 30 percent since March through prior to starting, according to Yamaguchi.

“Fundamental analysis is at the core of our strategy,” Yamaguchi, 29, said in an interview in Tokyo on Aug. 28. “Mid- to-small cap stocks tend to have less consensus views, so there are more opportunities to invest in surprises.”

The fund will employ a so-called market neutral strategy, which seeks profits regardless of the market’s direction, said Yamaguchi, who ran a hedge fund at Horizon Asset International Co. before founding his firm.

Akito’s 14 percent gain since inception through Aug. 28 compares with a 5.9 percent advance for Japan’s benchmark Nikkei 225 Stock Average. Japan-focused hedge funds have returned an average 7.6 percent through July, after posting a record 11 percent loss in 2008, according to Eurekahedge Pte, a Singapore- based data provider.

Geo, Yellow Hat

The fund monitors corporate events such as earnings and monthly sales figures of about 500 Japanese companies and invests in 100 to 200 stocks, according to Yamaguchi. To reduce risks, it doesn’t take any bets on industries, themes and the direction of the market, and has average positions of about 2 percent in each stock it selects. For hedging purposes, the fund also uses index futures and options, he said.

In August, the fund bet that declining capital at Geo, an Aichi prefecture-based DVD and CD store operator, will lead to higher earnings even as monthly sales figures had been falling, Yamaguchi said. The company on Aug. 7 reported net income of 1.19 billion yen in the first quarter, rebounding from a 481 million yen loss a year earlier. The stock has risen 30 percent this month.

Yellow Hat, a Tokyo-based retailer of automotive products, helped boost Akito’s performance on wagers that discounted highway charges will encourage more car travel and lift demand for auto-related products, Yamaguchi said. The stock has jumped 14 percent so far this month.

About 250 new hedge funds started globally in the first six months, according to Eurekahedge.

The fund expects to grow its capital to 1.9 billion yen next month through performances and new allocation from investors including high-net-worth individuals, Yamaguchi said.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net