Former Mitsubishi UFJ credit trader to start Japan-focused hedge fund

Bloomberg

Yoshihito Asakawa, a former Mitsubishi UFJ Morgan Stanley Securities Co. trader, will start a Japan-focused hedge fund in May that will invest in credit derivatives and currencies.

Asakawa, 31, plans to start with about ¥500 million in initial capital raised from investors he found through his own blog, and eventually wants to raise ¥2 billion within two years, he said. The fund will target about a 15 percent to 20 percent return annually, he said.

Hedge fund startups are trying to raise money as investors become more risk-averse amid Greece’s debt crisis and the biggest investigation of Japan’s fund industry after AIJ Investment Advisors Co.’s suspension by regulators looking into how the firm managed clients’ money using a hedge fund strategy. It is believed to have lost billions of yen in retirement funds.

“It’s become a lot more difficult as a trader and as an institution to take risks,” Asakawa, who set up Sherpa Asset Management last month, said in an interview in Tokyo. “The AIJ scandal has a negative impact for the fund industry as a whole, but I’m trying to take it positively that pensions will start putting more money with those that are trustworthy.”

Asakawa joins traders who have left global firms as banks reduce risk amid greater regulation after the collapse of Lehman Brothers Holdings Inc. in September 2008. The U.S. in 2010 approved the so-called Volcker rule, named after former Federal Reserve Chairman Paul Volcker, to curtail banks from using their own capital to make wagers on stocks and bonds.

Eighty percent of the new fund will be in credit derivatives such as credit-linked notes and first-to-default notes, while the rest will be managed by bets on the foreign exchange market, Asakawa said. The derivatives have three to four times higher returns than investing in corporate bonds, he said.

Credit-linked notes are securities backed by payments from credit-default swaps. Investors typically purchase the notes for higher yields or get tailored maturities that may not be available in the bond market. In these first-to-default notes, if any of the companies default, investors get the defaulted bonds or loans.

The fund will first be sold domestically and aims to obtain an investment management license, Asakawa said.

AIJ, a Tokyo-based asset manager, was suspended Feb. 24 by financial regulators after it couldn’t account for all of the ¥185.3 billion it managed for clients as of March 2011. Pensions including those representing unions were among clients that had money with AIJ, which has yet to be accused of wrongdoing.