Ex-Credit Suisse Manager Tomiyama to Start Japan Hedge Fund

Date: Wednesday, January 13, 2010
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Kunio Tomiyama, former chief fund manager at Credit Suisse Asset Management Ltd., plans to start a hedge fund by the end of this year that will restrict investments to a maximum of 30 Japanese stocks to boost returns.

Tokyo-based Wealth Bay Investment, created in September by Tomiyama and former DKR Oasis Management Co. analyst Makoto Uraga, aims to start advising the fund with initial capital of about 1 billion yen ($11 million). The fund has a capacity to grow to a maximum of 40 billion yen, said Chief Executive Officer Tomiyama.

The fund’s long-short strategy will invest in Japanese companies set to benefit from growth in Asia and emerging markets, he said in an interview yesterday, and expects annual returns of 15 percent to 20 percent. Wealth Bay enters the market as Japan-focused funds returned 7 percent last year, underperforming global hedge funds’ 19 percent advance.

“Given the economic and market outlook for Japan, it’s hard to be optimistic, so long-short strategy is the best way to invest in such an environment,” said Tomiyama, also the co- manager of the fund. “Betting only on stocks that we are convinced have growth potential becomes important, rather than diversifying risks by betting on too many stocks.”

Betting on 50 to 70 stocks forces managers to invest in companies they are not sure of based on fundamental analysis, Tomiyama said.

Japan’s economy expanded at an annual pace of 1.3 percent in the third quarter, following growth of 2.7 percent in April through June, revised figures from the Cabinet Office showed in December. Japan’s real gross domestic product growth will be between 1 percent and 1.5 percent in 2010, Standard & Poor’s said in a report on Jan. 8.

‘Black Swan’

Wealth Bay will only invest in about 15 to 20 stocks initially, Tomiyama said. For its short positions the fund will look at companies with past successes in developed countries such as Toyota Motor Corp. and Nippon Steel Corp., he said. Taking short positions involves selling borrowed stocks in the belief prices will fall and they can be bought back cheaper for a profit.

“We may still see another arrival of a black swan,” Uraga, managing director of Wealth Bay, said in the same interview, referring to a theory developed by author Nassim Taleb that highly improbable events can cause havoc in financial markets. “Under such market condition, long-short is the best way to make return.”

The new fund will target wealthy individuals domestically and also some overseas investors including fund of hedge funds, he 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.

Post-Lehman Funds

Traders and managers who left major financial firms and hedge funds have set up their own hedge-fund firms to capitalize on investment opportunities since the collapse of Lehman Brothers Holdings Inc. in September 2008 that exacerbated worst market rout since the Great Depression.

Managers of 12 Japan-focused startup hedge funds that commenced since September 2008 and have more than six months of track record returned 6.5 percent last year through October, according to data provided by Singapore-based hedge-fund consultant GFIA Pte.

Prior to joining Credit Suisse, Tomiyama’s long-short fund at Shinko Investment Trust Management Co. returned 45 percent in the 4 1/2 years through October 2003, compared with more than a 20 percent decline by the benchmark Topix index.

Tomiyama was head of Japanese equity investment Management at Credit Suisse Asset in Tokyo. Uraga also worked as an analyst at EN Asset Management Ltd. in Tokyo, a U.K. hedge fund.

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