Ex-DKR Oasis Analyst Plans Japan-Focused Hedge Fund

Date: Tuesday, July 21, 2009
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Frederic Eechaute, a former senior analyst at DKR Oasis Management Co. LP, will start a Japan- focused equity hedge fund that trades stocks using its own analyst database.

Eechaute, who will split his time between Tokyo and Sydney, along with Stephen Good, who formerly worked in the Japanese equity sales department at Mizuho Securities Co., set up Instinct Capital in June to run the new fund that may open as early as September. The fund will employ a so-called long-short strategy, betting on rising and falling stocks, and have a maximum capacity of 30 billion yen ($319 million).

Stamford, Connecticut-based DKR Oasis’s main fund slumped 27 percent last year, compared with an average 19 percent loss by global hedge funds as measured by Hedge Fund Research Inc. Eechaute, who left in December, said his new Cayman Island-based fund aims to have annual returns of about 15 percent.

“I’m starting to see demand from investors who want to have a Japan exposure when the market makes a comeback,” Eechaute, 33, said in an interview on July 17. “It’s not going to be enough to study stocks if you want to be successful. Building a network and gaining trust from the executives and analysts will give you the best access to trading ideas.”

Eechaute and Good, 48, join an exodus of analysts and managers who’ve started their own firms during the past year as large banks and investment funds scaled back trading to conserve capital amid the worst market rout since the Great Depression. About 250 new hedge funds started in the first six months this year, according to Eurekahedge Pte.

‘Analyst Mapping’

Instinct Japan Hedge Fund will start with about 1 billion yen to 2 billion yen in assets, Eechaute said in an interview in Tokyo. It will invest in the stocks of about 20 Japanese companies with market capitalization of more than 100 billion yen and hedge by shorting index futures, he added. In a short sale, a manager borrows a stock or an index future and sells it in the hope it can be bought back later at a cheaper price.

Eechaute, a French national who first came to Japan when he was 16 years old and attended a Japanese high school, will use what he calls an “analyst mapping strategy,” using a database he has built in the nine years he worked at Mizuho Securities and DKR Oasis, a $1.6 billion investment firm formed in 2002 as a joint venture between Oasis Management Holdings LLC and DKR Capital Partners LP.

Early Entry

Hedge funds, beset by investor withdrawals in 2008, are starting to attract money again after outperforming stock markets this year. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, gained 9.5 percent through June, compared with the 4.8 percent advance by the MSCI World Index. In June, the funds had net inflows for the second consecutive month, attracting $4 billion, Eurekahedge said.

Eechaute says he’s seeking to make an early entry in offering investment opportunities in hedge funds to investors amid signs of revival in Japan’s capital markets. He plans to target investors in Asia, both individual and institutional.

“Right now, people are thinking that Japan’s hedge-fund industry is dead and many have written off the market,” said Eechaute. “That is going to change, not next year, but the year after, and we’re starting to see the signs already.”

He cited Nomura Holdings Inc.’s acquisition of Lehman Brothers Holdings Inc.’s Asian units and fund raising plans announced by Japanese financial institutions as examples of renewed activity recently.

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