Mizuho Securities Asia will soon launch an internal Asia ex-Japan CB arbitrage fund, which it will incubate with proprietary capital.
Katsuo Okuno, Mizuho's Hong Kong-based managing director and chief executive, expects the fund to open to outside investors after developing a one-year track record. He predicts that Japanese institutions as well as high-net worth individuals will be interested in the product. In addition, he says that European and US institutions looking for diversity among the equity long/short landscape in Asia would also find the fund attractive.
Okuno explains that the driving rationale behind the new fund is Mizuho's desire to diversify its exposure beyond Japanese yen products to the broader Asian markets. "Setting up a separate fund worked out as the most timely and cost effective way to achieve this objective," he says.
It also allows the bank to enter in the alternatives funds management business. "We've set up the fund with an umbrella structure, so in the future we may find another talented manager, with a long/short strategy, for example, and we can then launch another hedge fund product."
Mizuho has brought on board Samuel Faveur, an ex-ING CB arb trader who has worked in London, Tokyo and Hong Kong to run the new CB arb fund.
"The fund's mandate is quite broad," Faveur comments. "It includes traditional convertible bond arbitrage, which tends to be long volatility, but also more diverse strategies such as credit and capital arbitrage."
Despite the recent poor performance of US focused CB arb strategies due to overcrowding, Faveur is optimistic about the prospects for his strategy in Asia. "Asian markets are far less efficient that those in the US, the opportunities are more lucrative and are open for longer periods of time."
Nor is he concerned about the increasing focus that US hedge funds are putting on the Asian markets as a destination for capital deployment.
"There are significant barriers to executing this strategy in Asia," he argues. "Firstly you need a deep level of experience in the Asian markets, where liquidity can be tight at times and access to new issues can be difficult unless you know where to get them. Moreover, to operate efficiently you need to have direct access to each of the local Asian markets. This can be a very cumbersome process, particularly in markets like India and Taiwan."
He adds that some of the large US funds have quite restrictive investment mandates, which make it difficult for them to deploy their capital effectively in Asia.
The fund has appointed Deutsche Bank as its prime broker and Fortis as its fund administrator.