Hedge funds troll for Japan's wealthiest

by Tomoko Yamazaki and Komaki Ito


The city of Ashiya, Hyogo Prefecture, has been home to the nation’s industrial titans since samurai ruled the land more than a century ago. Now it is a feeding ground for hedge funds tapping the wealth of new multimillionaires like Kunihisa Sagami.

Sagami, founder of mail-order cosmetics and jewelry supplier Epix, is one of the residents of the gated enclave overlooking the port city of Kobe who are among the highest taxpayers in Japan. They’re the elite in a nation where households hold combined financial assets in excess of the annual gross domestic product of the U.S.

Overseas hedge funds like Winton Capital Management Ltd. and MKP Capital Management LLC are angling for that wealth to replenish capital after the credit crisis triggered the worst losses on record in their $1.6 trillion industry. And investors like Sagami are biting.

“I’m in the middle of shifting my cash holdings to hedge funds,” Sagami, 48, said Oct. 14 at his house, designed by Hisashi Kobayashi, on a 3,300-sq.-meter lot. “This is the beginning of the biggest bargain sale.”

He confirmed last month he is still investing in the funds.

This year has been the worst on record for hedge funds, with average losses of 16 percent through October, according to data compiled by Hedge Fund Research Inc. of the U.S. Investors pulled $40 billion from the funds in October, while market losses cut industry values by $115 billion, the firm said.

It isn’t just hedge funds circling communities like Ashiya. London-based HSBC Holdings PLC opened its first HSBC Premier Center in the Kansai region in Kobe on Oct. 24 to provide wealth management for individuals.

A 40-minute drive from Ashiya, the private-banking team at the Osaka-based Sumitomo Trust & Banking Co. also has the community in its sights.

Department chief Hiromitsu Nakagawa said he offers mutual funds that include hedge funds to individuals with more than ¥500 million in financial assets. He said many clients want to diversify portfolios that are mostly made up of inherited properties and securities.

Former residents of Ashiya include Chubei Itoh, who in 1858 founded Marubeni Corp., a linen trading business that has become the nation’s fifth-largest trading company. His descendants still live nearby, the Tokyo-based company said. Shunya Toji, former president of the company now known as Sumitomo Corp. died in his Ashiya residence in 1961.

The global equities slump hasn’t deterred Sagami, who said he was Ashiya’s highest taxpayer in 2003 after annual sales from his business peaked at about ¥3.8 billion.

Seated by a Le Corbusier table in front of floor-to-ceiling windows with views of Osaka Bay, the hang-gliding enthusiast said he invests a pool of “several billions of yen,” mainly in emerging markets including China, Vietnam and India.

His holdings include Tsingtao Brewery Co., China’s biggest beer company, and PetroChina Co., China’s biggest oil producer. Tsingtao’s Hong Kong-listed shares, which have fallen 36 percent this year, more than doubled in the five years Sagami has held the stock. PetroChina has almost doubled during the period. Sagami declined to give his net worth.

“It’s a complete myth that high-net-worth individuals are starting to become conservative with their investments,” said Soichiro Takaoka, president of Tokyo-based Abraham Group Holdings Co., which provides concierge services to clients with combined assets of more than ¥500 billion.

“The ¥100 million luxury apartments may not be selling, but the fact is ¥500 million condominiums are,” he said. “One way or another, the rich tend to become richer.”

Takaoka’s Yucasee club, open to people with financial assets of more than ¥100 million, offers services ranging from purchasing luxury villas in Bali to arranging VIP seats at major league baseball games featuring Daisuke Matsuzaka of the Boston Red Sox and Ichiro Suzuki of the Seattle Mariners.

Takaoka said about 70 percent of Yucasee’s members — mainly entrepreneurs, doctors and lawyers in their 30s and 40s — have invested or are interested in investing in hedge funds. Abraham Private Bank offers members access to about 20 of the world’s top hedge funds.

The number of high-net-worth individuals in Japan — people with at least $1 million in financial assets excluding consumer goods and primary residences — rose 2.2 percent in 2007, Capgemini SA and Merrill Lynch & Co. said in a September report. Japan accounted for 40 percent of the wealth in the Asia-Pacific region.

New York-based MKP Capital, with more than $4 billion in assets, wants Asia to account for as much as 30 percent of its hedge-fund business, Vice President Timothy R. Lynch said in September. London-based Winton, with about $15 billion in assets, increased the size of its Japanese marketing team in the past three months, said spokesman Robin Eggar.

“We have become increasingly aware of how important all Japanese investors, both institutional and individual, have become to the company’s development as a global fund manager,” Eggar said in an e-mail.

Sagami likened the risks of investing to his hobby.

“From the ground, hang-gliding looks like a very smooth and elegant sport,” he said. “But in reality, as a pilot you are always looking out for dangers and scoping emergency landing sites.”