Trident Pacific, a Singapore-based hedge fund will shortly launch its mid-cap Japan equity long/short fund. The fund will adopt a fundamental bottom-up approach and focus on Japanese companies outside of the top 150 by market cap.
"Japan lends itself well to our strategy. The market is large and deep and there is a real capacity to find value," says Jens Muenster, Trident's CIO. He believes that the Japanese economy has finally turned the corner and is on a secular upward trend. "Of the major markets in the world, it is comparatively cheap from a bottom up perspective. Also, among G7 nations, Japan has the highest manufacturing base and is best positioned to benefit from the growing purchasing power of Asia's 3 billion consumers."
Trident recently undertook its first marketing trip to Europe and the United States. The team hopes to raise $25 million within the next three to six months.
"Two of our three principals are German and we expect that their relationships will create opportunities for us to market the fund in Germany. In light of the recent relaxation in regulations there, we think this will be an increasingly active market," says Muenster. He says that Trident will not be marketing to Japanese investors onshore as it is too complicated from a regulatory perspective.
The Trident team have a combined experience of over 30 years of equity investment in Japan. Muenster says, that the fund's mid-cap focus suits his expertise. He was previously head of equities at WestLB Pacific, a specialized broker for small and mid-size companies in Japan. He was also responsible for the firm's proprietary cash and the equity derivatives book.
Trident COO, Michael Clemons, also spent time at WestLB as COO and deputy head of equities, before moving on to hold the COO role at CLSA in Tokyo.
Christoph Schockemohle, who will lead the fund's business development and marketing efforts previously worked at WestLB Panmure's corporate finance group in London and Duesseldorf.
Bringing buyside expertise to the team is managing director Masayo Kamano. Kamano was previously a portfolio manager at American Express in Japan, managing a discretionary portfolio of $1 billion. She will be supported by David Schneider, previously an analyst with WestLB.
Schneider and Kamano will be stationed in Tokyo, while the three principals will be based in Singapore.
"We felt that it was too time-consuming to gain a discretionary asset management license in Japan, so we decided to set up our management company in Singapore," says Clemons. Of course, an on the ground presence in Japan is crucial and our advisory company, Tozai has a branch in Tokyo where two of our investment advisor's are based." Muenster says that he will also be making monthly trips to Japan.
Explaining the choice of Singapore over Sydney or Tokyo as a base for the fund Clemons says, "The regulatory body here were forthcoming. Singapore was an efficient choice from a cost perspective and the time zone is only one hour behind Japan."
The fund is targeting a return of 15% per annum with volatility below 10%, with a low leverage level.
Muenster says that the fund has developed a proprietary screening tool that runs sensitivities on the universe of Japanese stocks and selects 75 long and short candidates. The team then calculates the intrinsic value for these companies and looks for those that show the most differential from market price.
"We also conduct detailed company visits and look for catalysts which would cause the company to be re-rated in the next three to six months," says Muenster.
"For example, we were short Oki Electric when the company was trading at ¥500. We priced the share at ¥400 based on its intrinsic value and knew from our analysis and a company visit that they were on track to produce an earnings disappointment, which would push the stock price down."