Sydney-based Japan investment manager Optimal Fund Management last week launched its Asia ex-Japan long/short fund, the group's first non-Japan product. The fund, which currently has $4 million under management, will cover the Asian region from India to Australia.
Optimal managing director Warwick Johnson says the fund will take a purely bottom-up approach, unconstrained by sector weights or country overlays. Morgan Stanley and UBS are the prime brokers to the new fund.
"We started doing research about three years ago at how developments around the world were affecting Asia and have now decided to launch a fund to cover the Asia ex-Japan region,- says Johnson.
Optimal launched its first product, a Japan equity long/short fund, out of Sydney in October 1999. The fund is currently closed with $500 million in assets under management.
In September the group launched a Japan absolute return fund, which focuses on long-only investments in the Japanese market. The fund currently stands at $12 million.
"The Japan absolute return fund was a natural move for us as it required no additional research," he comments. "We could not accept any more money in our Japan long/short fund and knew we could run money in a long-only fund with out affecting the returns of our long/short portfolio.
"I can see absolute return products increasingly entering the mainstream in the future. I think with the track record of our long/short fund and my long-only background puts us in a good position to market our absolute return Japan fund to institutional investors.-
Prior to setting up Optimal in 1999, Johnson was head of equities at Prudential Fund Managers in Australia. He spent 12 years working and living in Japan, and at one period was head of investments at HSBC Asset Management in Japan.
Johnson is optimistic about the prospects of the Japanese market. "There's no downside in Japan. I expect the market to go up by about 50% over the next three years,- he says.
He notes that opportunities in Japan's service sector are hard to come by as the companies tend to be less well managed: "Our current portfolio is skewed on the long side towards manufacturing and basic materials, - he says.
The Optimal funds take a bottom-up value approach to investing, and the team has two research analysts based in Tokyo for on-the-ground research and company visits. Johnson says he also takes frequent trips to Japan. About 95% of Optimal's investors are offshore institutions, fund of hedge funds and high-net worth individuals.
As a Japan hedge fund manager based in Sydney, Johnson admits that raising assets in the early days was a challenge. "It took as 18 months to raise the first $100 million. By the beginning of 2003 we were at $150 million and we raised assets rapidly thereafter,- he says. "However, increasingly we are seeing more foreign investors in town that are making trips to Sydney to visit boutique managers based here.-