Characteristics of the Hedge Fund Industry in Japan

Sanderson, Ferenc A.

In recent years Japan's hedge fund industry has been an increasingly popular destination for global investor allocations. Using a comprehensive database of returns and assets under management of Asian hedge funds we investigate the size flows, performance and other characteristics of Japan's hedge fund industry. We have four main findings. First, we find that the industry has grown at a phenomenal rate since the second half of 2003, although the compound annual growth rate of assets appears to have slowed in the six months ending December 2005. Second, a time series of estimated dollar money-flows into/out of Japan's hedge fund industry points to large inflows in recent years. These have been directed at long/short equity, directional equity and event driven strategies. Third, we note that the average asset-weighted or equal-weighted performance of Japan hedge funds under-performed traditional Japan equity benchmarks. Finally, we describe the prototypical hedge fund trading Japan as being a very small, Cayman Island-domiciled fund with its portfolio managers typically domiciled outside of Japan. Additionally, we note an increase in structures in which there is Japan-based investor advisor to the offshore fund. Overall, these findings improve our understanding of industry money-flows, performance and other fund characteristics.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 243
Published Here
February 14, 2011