Masahiro Koshiba is the chief executive and founder of Tokyo-based United Managers Japan (UMJ), a hedge fund platform for domestic Japanese managers with $200 million in total AUM. He also manages the UMJ Kotoshiro Fund, a Japanese long/short equity strategy that has returned 30.2% in the first nine months of 2013.
Koshiba is a veteran of the Japanese hedge fund industry, having co-founded Japan Advisory, which was set up in 2000 as a subsidiary of JH Whitney Investment Management, the US hedge fund group. He previously headed Deutsche Asset Management’s large-cap equity management division.
AsianInvestor sat down with Koshiba to discuss how Japan's hedge fund industry has evolved in the past decade and why Abenomics concerns him.
What inspired you to set up UMJ as a platform for Japanese hedge funds?
In 2004, Japan Advisory soft-closed two funds that were under its management: the Whitney New Japan Fund and Whitney New Japan Select Fund. The group had $4 billion in total assets at the time, so the strategies were closed to new investors.
However, there were overseas investors seeking opportunities to invest in Japanese long/short funds managed domestically, in addition to other strategies. I knew of some domestic fund managers of long-only funds who wanted to enter the hedge fund sector and shift to managing long/short equity portfolios.
I felt I could provide a hedge fund incubation platform that would introduce local fund managers to both overseas and domestic investors. As a result, UMJ was set up in 2004.
How would you describe the Japanese hedge fund sector in 2004?
The market conditions then were very similar to the environment now. Junichiro Koizumi was prime minister and he had vowed to write off bad debts for banks, which was welcomed by overseas investors. The index rose 50%-60% in a six-month period in 2003. Many investors had a healthy interest in Japanese long/short equity strategies.
You set up UMJ Kotoshiro Fund during the financial crisis in 2008. Why did you think the time was right to launch a new strategy?
The Whitney New Japan Fund and Whitney New Japan Select Fund were set up after the IT bubble burst in 2000. At the time, the markets were obviously going south, but we started with just $20 million and went on to raise a few billion. We had set up the funds during a tough period of time in the belief that in the long run, it would pay off.
Since the onset of Abenomics, have there been any industries that you favour in particular?
My portfolio is diversified across sectors, as I normally pick stocks based on individual business models. That said, because of the upcoming Tokyo Olympics in 2020 and rebuilding projects as a result of the 2011 Japan earthquake, I have several stocks in the public works sector.
What is your long-term view on the effect of Abenomics on Japan, particularly given that there was an equal amount of optimism during Koizumi’s reign but his policies were not sufficient to bring Japan out of a recession?
Personally, I’m not as optimistic as others in the market. Restructuring the economy is a tough job and I wouldn’t know how to do it myself, considering that Japanese government debt is more than 200% of its GDP, and 70% of new JGB [Japan government bond] issuance has been taken up by the Bank of Japan.
But once we’ve had some economic shocks, which would help change the public’s mindset and help individuals to be more self-sufficient and less reliant on the government, then the government can reduce public expenditure.
In the medium-term it’s a question mark, but in the long term the outlook is probably good.
*The full version of this article will appear in the November edition of AsianInvestor magazine.