Japan Set For Hedge Fund Boom

by Carla Johnson, Investors Offshore.com

23 November 2004

According to a report in the Financial Times, the hedge fund industry in Japan is likely to undergo something of a boom in the next ten years as investors look to profit from a number of different opportunities.

This is the view of Adrian Gmur, head of Asian manager search at RMF Investment Management, who told the FT that the Japanese hedge fund market is roughly at the same stage of development as the European market in 1998.

"We think we can generate a lot of [positive returns] here because the markets are less efficient, there are fewer hedge funds and proprietary trading activity [at investment banks] is not so strong since the Asian crisis," Mr Gmur observed.

Illustrating Japan’s potential, hedge fund assets account for just $20 billion, or less than 1%, of all investments in Tokyo stocks. This compares to a proportion of 5% to 10% in Europe.

Mr Gmur stated that a lack of comprehensive analysis on Japan’s 3,000 listed stocks is helping to throw up many pricing inefficiencies in the market place, and therefore many profit opportunities currently exist.

"If someone does the homework, that leaves a lot of room for opportunities," he told the FT.

However, at present, most of these opportunities exist for traders employing long-short strategies, with the immaturity of the Japanese market precluding the use of other investment techniques such as arbitrage and event driven strategies.

Gmur also believes that clarification of Japan’s hedge fund laws would also act as a catalyst for the hedge fund industry, as much trading activity is currently conducted from bases in different time zones, such as London and New York

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