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Tokio Marine to Cut Hedge-Fund Investments This Year After Rout

Date: Thursday, July 23, 2009
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Tokio Marine Holdings Inc., Japan’s biggest casualty insurer, plans to trim hedge-fund investments and shift more of its portfolio in the industry to strategies such as macro and long-short equity funds.

Tokio Marine & Nichido Fire Insurance Co., a unit of Tokio Marine Holdings with 8.4 trillion yen ($90 billion) in assets, will trim its holdings in hedge funds “slightly” this year from about 100 billion yen at the end of March, said Eisuke Shigemura, who runs the firm’s hedge-fund investment group. He declined to quantify the planned reduction.

Redemptions and market losses slashed the value of the insurer’s hedge-fund holdings by 33 percent last fiscal year. To minimize fees and amplify profit, Tokio Marine, which began investing in hedge funds in 1998, will remain focused on single hedge funds, rather than fund of hedge funds.

“Last year was a turning point given the market rout, and it prompted us to get back to basics,” Shigemura, 43, said in an interview in Tokyo yesterday. “We have no plans to increase our holdings; in fact, we plan to trim them.”

Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer with 23 trillion yen in assets, is also planning to cut investments in hedge funds this year. It will reduce its allocation to the industry by “several tens of billions of yen” from 64.6 billion yen as of March 31, Shinji Makino, manager of the company’s investment planning division, said on July 16. Meiji Yasuda slashed its hedge-fund holdings by more than 40 billion yen last year.

Single-Manager Funds

Tokyo-based Tokio Marine invests in about 60 hedge funds, more than half of them based in the U.S. and Europe, according to Shigemura. About 20 percent of the assets of those funds are of fund of hedge funds, he said.

Focusing on single-manager hedge funds helped the insurer limit losses by allowing it to get market information directly from hedge-fund managers, Shigemura said.

Gross inflows to the hedge-fund industry totaled $19.2 billion globally last month, compared with $13 billion in redemptions, mainly from funds of hedge funds, Singapore-based Eurekahedge Pte. said in a June performance report.

The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, slid 12 percent last year, the most since the Singapore- based firm began tracking data in 2000. The index is up 9.5 percent through June, compared with the 4.8 percent advance by the MSCI World Index.

Among strategies that may be attractive for short-term investments are those that benefit from increased volatility caused by the uncertainty over a global economic recovery, said Atsushi Yamada, a manager in Tokio Marine & Nichido’s hedge-fund investment group. He cited so-called macro-funds, which wager on trends in stocks, bonds and currencies worldwide; long-short funds, which bet on rising and falling stock prices; and funds that invest in credit and distressed assets.

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