Lyxor Says It May Turn Bullish on Japanese Hedge Funds in 2010

Date: Monday, November 30, 2009
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Lyxor Asset Management, an investment arm of Societe Generale SA, said it may start investing more in Japanese hedge-fund managers next year as it expects a rebound after the recent sell-off in the country’s stock market.

Lyxor, which invests its money with some of the 110 hedge- funds clients whose accounts it manages, is “underweight” Japanese stocks and short U.S. dollars, said Stefan Keller, Paris-based strategist, at the firm.

Japan’s Topix index, down 14 percent in the past three months, is the worst-performing benchmark among developed nations this year in dollar terms. The yen rose to a 14-year high against the dollar last week, eroding earnings at exporters such as Sony Corp. and Toyota Motor Corp.

“It could be very soon that we will be more positive on Japanese equities, something that should happen in the first quarter 2010 given the valuation gap, given the exchange rate,” Keller said in an interview in Tokyo on Nov. 27. “We can allocate more to Japanese long-short equities managers, that would be a part of the shift, which we can implement quite easily.”

The $1 billion-Lyxor flagship fund of hedge funds has returned about 5.5 percent this year through November, reaching the investment objective of the fund, which is to outperform the Libor three-month-rate by 500 basis points. A basis point is 0.01 percentage point. The Eurekahedge Fund of Funds Index has gained 8.1 percent through October.

Liquidity, Transparency

As global hedge funds make a comeback this year after suffering their worst year on record in 2008, investors are preferring to invest through managed accounts, Keller said. Managed accounts are intended to provide clients better liquidity and transparency through risk controls, including taking positions that are redeemable once a week to secure liquidity in case of a crisis, he said.

Lyxor has seen $5 billion in net inflows this year into hedge funds through its managed accounts, bringing its total assets under management to about $12 billion, Keller said. It has added 10 hedge funds to its managed accounts, including funds from Leon Black’s Apollo Management LP in New York and Paul Tudor Jones’s Tudor Investment Corp. of Greenwich, Connecticut, he said.

It aims to increase the number of accounts to about 200 with total assets under management of $35 billion in about 24 months, Keller said.

Lyxor currently favors strategies including arbitrage funds and has started to invest in funds targeting distressed assets, Keller said.

‘Dust has Settled’

The Eurekahedge Hedge Fund Index has gained 16 percent this year through October as markets recover after the worst rout since the Great Depression that was exacerbated by the collapse of major financial institutions including Lehman Brothers Holdings Inc. in September 2008.

“Expectations for hedge funds next year should be again for double-digit positive” returns, Keller said. “Clearly, hedge funds were there to pick up the pieces. Players today who survived the crisis in 2008 have already shown positive performance in 2009, so we expect this environment where the dust has settled to be positive for the hedge-fund industry overall.”

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