Sparx Group Opens Hedge Fund With Soros Strategy

Date: Tuesday, September 1, 2009
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Sparx Group Co., Asia’s biggest hedge-fund firm, will open its first global macro hedge fund to new investors as the company departs from its traditional focus on equities to return to profit.

Cayman Island-based Sparx Global Markets Fund began on Aug. 12 with the firm’s own capital of 900 million yen ($9.7 million), said Masaki Taniguchi, president of Sparx Asset Management Co. The fund wagers on stocks, bonds and currencies based on fundamental analysis of world economic trends in the Group of Ten nations, similar to the George Soros’s Quantum Fund, he said.

Sparx Group, which posted the first annual loss in its 20- year history in May, is aiming to profit from demand for global macro funds in a market short of similar offerings. The strategy was among the few winners in 2008 when hedge funds worldwide suffered record losses. Sparx’s new fund had an about 28 percent return this year through July based on simulated trades.

“In the wake of the global market crisis, we must expand our investment domain to meet the needs of our clients,” Taniguchi, 37, who took leadership of Sparx’s asset-management arm in June, said in an interview in Tokyo yesterday. “In order to do that, getting into a strategy that has less competition makes sense to take up market share in that strategy.”

Eurekahedge Pte, a Singapore-based hedge-fund research firm, does not have a dedicated index tracking Japanese global macro hedge funds, while Asia Genesis Asset Management Pte is planning to close its Japan Macro Fund this month.

Profit Pledge

The fund will be yen-denominated and will have maximum capacity of 50 billion yen to 100 billion yen, Taniguchi said. It will target domestic institutional investors who seek to diversify their portfolio with yen-based funds to cut currency risks, he added.

Managers of global macro hedge funds returned 3.3 percent in 2008, when the industry posted an 11 percent drop in its worst year on record, according to Eurekahedge. The strategy has returned 7.9 percent so far this year through July, compared with a 13 percent advance by the Eurekahedge Hedge Fund Index.

Shuhei Abe, chief executive officer of Sparx Group, has pledged to return the firm he founded in 1989 to profit, after reporting a 23.3 billion yen full-year loss in May.

The asset manager narrowed its first-quarter loss to 641 million yen, compared with a loss of 809 million yen a year ago, it said last month.

Fees from assets managed fell 47 percent from a year ago to 1.7 billion yen in the first quarter. Performance-based fees dropped 95 percent to 64 million yen and revenue fell 40 percent to 2.2 billion yen in the period.

Wider Range

Beginning with the new global macro fund, Sparx aims to have a wider range of products to meet investor needs in the wake of the worst market rout since the Great Depression, Taniguchi said. It’s considering a fund that will invest in credits, he said, adding that the company may hire people with such investment expertise. He declined to elaborate as the fund is still in a planning stage.

Sparx currently offers more than a dozen funds, all of which invest predominantly in shares. The firm last year hired proprietary traders with expertise in the global macro strategy from a Japanese financial institution, part of the push to focus on a wider array of securities markets, Taniguchi said. He declined to identify the company.

Assets Drop

Total assets managed by Sparx have dropped more than 60 percent from an August 2006 peak, and stood at 718.1 billion yen as of July. In response, Abe has pledged to cut annual costs by 6 billion yen by March 2011 and has reorganized the company along the lines of traditional and alternative investments.

Hedge-fund assets rose by $10.6 billion to $1.35 trillion in July, the third monthly increase, according to Eurekahedge.

Sparx shares have gained 6.6 percent this year, recovering from a record low in March. The stock closed 2.8 percent higher today at 14,500 yen on Tokyo’s Jasdaq exchange.

The group company was the top-ranked Asia-based single- manager hedge-fund firm for a fourth straight year in 2009, according to Alpha magazine’s ranking.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate substantially in profits from money invested.

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