AIJ Investment Advisors Co., suspended by financial regulators, told investors one of its funds returned 241 percent since it started in May 2002 by mainly trading Nikkei 225 options, according to a newsletter obtained by Bloomberg News.
The Financial Services Agency on Friday ordered the Tokyo-based firm with ¥183.2 billion in client money to stop business for a month as the regulator investigates possible losses at AIJ’s hedge funds.
AIJ’s AIM Millennium fund returned 3.9 percent in the six months through last September, according to the four-page October 2011 newsletter in Japanese. That compares with an 11 percent decline in the Nikkei 225 stock average and 12 percent retreat in the broader Topix index.
“This is a so-called alternative investment fund and unlike traditional assets such as equities and bonds, the aim is to secure absolute returns regardless of the market directions,” the newsletter said. It noted the strategy is able to provide stable returns even when bond and stock markets drop.
The hedge fund industry has come under scrutiny in the past four years, since the collapse of hedge funds run by Bear Stearns Cos. in 2007. Bernard Madoff was arrested in 2008 for operating the largest Ponzi scheme in U.S. history and hedge fund Galleon Group LLC cofounder Raj Rajaratnam was found guilty in May of insider-trading.
Japan-focused hedge funds lost 4.1 percent in 2011 as global peers suffered their second-worst year on record amid Europe’s sovereign debt crisis and concerns of an economic slowdown worldwide. Regulators have been investigating AIJ since the end of January, and discovered that the company has been unable to explain to investors the current state of the way their money is being managed, according to the FSA.
The newsletter cited ITM Securities Co. as the distributor of the fund. Yasuo Tsuneyoshi at ITM’s planning department said the firm sold AIJ’s funds to pensions, declining further comment until the investigation is completed.
Lights at ITM’s office on the seventh floor of the Nihombashi-Dori Ni-Chome Building in Tokyo’s Nihombashi district were switched off Monday, and the only indication of recent activity was a container of hand sanitizing liquid on a table outside the locked door.
Calls to AIJ, which is listed on the Internet as being based on the floor above it, reached an automated recording that didn’t take messages.
AIJ also listed two other funds in the newsletter, with returns of 32 percent and 22 percent since their inceptions. The funds were based in Cayman Islands, according to the newsletter.