Gwyn Roberts

16/03/2011 Author: Gwyn Roberts

Assessing the impact of the Japanese tsunami

With communities erased, and a potential nuclear crisis unresolved, it seems too soon to ponder the future of Japan’s hedge fund sector. Dwarfed against the human cost of last week’s deadly earthquake and tsunami, the sector is, rightly, unimportant. But 2011 was also the year that was meant to see Nippon-focused managers come blinking into the light after a period of darkness.

Before the wave, Japan-focused hedge funds had an excellent January – HFR figures showed that the sector was up 1.40%, after a solid 8.32% in 2010. The country was starting to magnetise interest again from managers, including new launches, convinced that a growing market for M&A, and improved exports, represented rich terrain for equity and event-driven specialists.

At the start of March, managers were still bullish. At HFMWeek’s Macau-based Operational Leaders’ Summit, a number of pan-Asia players described plans to increase exposure to Japan, based on “opportunity and investor demand”. This final, decisive, factor had yet to really crystallise, but, given some of the stellar performances in the space – the Monterey Japan Equity Fund and the Arcus Japan Value Fund both performed close to 30% over the last 12 months – allocators were bound to look closely.

They will still be scrutinising the market. As one prime broker says: “instead they will now look at the tumbling Nikkei, and fret about Japanese debt.” Investors, who were showing interest in January, may defer, despite some buying opportunities. Japan’s government has taken quick action – which will help in the long-run – but nature has temporarily slowed Japan’s hedge fund growth.This is nothing compared to what it has done to the rest of the nation.

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