Ex-DKR Eechaute Makes 13% Gain With Instinct Japan Hedge Fund

Date: Friday, January 22, 2010
Author: Tomoko Yamazaki and Komaki Ito, Bloomberg

Frederic Eechaute, a former senior analyst at DKR Oasis Management Co. LP, has led his new Japan- focused hedge fund to a 13 percent return in less than two months by betting on the most liquid stocks.

The Instinct Japan Opportunity Fund, which started on Dec. 2 with about $10 million of capital, employs so-called event- driven and long-short strategies betting on companies in the midst of events including capital raisings and convertible-bond sales, according to Eechaute.

Twelve comparable Japan-focused startup hedge funds monitored by Singapore-based hedge-fund consultant GFIA Pte posted an average 6.2 percent return last year. The Eurekahedge Hedge Fund Index had its best annual performance in six years in 2009, with a 19 percent gain.

“Appetite for Japan is slowly coming back,” Eechaute, 33, said in a telephone interview Jan. 20. “Due to the lack of interest up till now, there are huge opportunities for Japan- focused strategies and multi-event driven strategies in Japan have become a bit of a niche.”

Eechaute and Stephen Good, who formerly worked in the Japanese equity sales department at Mizuho Securities Co., set up Instinct Capital in July last year to run the new fund, joining an exodus of analysts and managers who’ve started their own firms to capitalize on the investment opportunities seen in the wake of the worst market rout since the Great Depression.

‘Interesting Activity’

There are only four Japan-focused event-driven funds, according to Singapore-based Eurekahedge Pte. The index measuring Japan-focused event-driven funds returned 1.7 percent in 2009, underperforming the Eurekahedge Japan Hedge Funds Index, which tracks 91 funds, that returned 6.6 percent. The 12 Japan-focused startup hedge funds monitored by GFIA all commenced since September 2008 and had more than six months of track record.

“As the number of players in the Japanese equity long- short and event-driven hedge fund space has diminished over the past few years, the table could well be set for some interesting activity in the space, especially if the market behaves as some are predicting,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business.

Sydney-based Instinct Capital hired Daisuke Kitagawa, formerly of hedge fund firm Arnott Capital Pty in Sydney, KBC Alternative Investment Management and Goldman Sachs Group Inc., as a fund manager. Haruka Yokota from Credit Suisse Group AG in Tokyo joined as an operations manager this month. The firm aims to hire Tokyo-based analysts for the fund and open a branch in the Japanese capital by the end of the year, Eechaute said.

Haseko Shares

The fund, which can be unwound in two trading days, targets the top 200 liquid stocks in the Topix index of 1,681 companies, according to Good. It holds stocks for an average period of less than five days to limit risks, he said.

Haseko Corp., a Tokyo-based general contractor, was among the stocks that contributed to the fund’s performance, according to Kitagawa. The fund invested in the stock in anticipation of price changes caused by conversion of its convertible bonds to equity.

It bought the stock at the end of December and sold the securities before the conversion ended on Jan. 19, he said, during which time the shares rose more than 20 percent.

“The key is to find a possible event catalyst way before the market realizes and exit even before the event is realized,” Kitagawa 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.

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