Symphony Financial Partners, the Tokyo-based hedge fund manager, sees 2012 as a year that will bring continued market volatility in Asia, while offering opportunities to invest in undervalued Japanese companies, its co-chief executive David Baran says.

The firm was able to demonstrate its ability to perform in difficult markets last August – one of the most volatile trading months in the region in 2011 – by generating a return of 39.8% that month for its Sinfonietta Master Fund, a pan-Asia macro strategy, and 29% for all of 2011.

Its Japan-focused SVP Value Realization Master Fund – an event-driven strategy – returned 8% in 2011, compared to the average yield of -1.27% among its peers, according to data provider Eurekahedge. Hedge fund managers in the country found themselves trading under highly volatile market conditions following an earthquake in March which triggered a tsunami and nuclear power plant crisis.  

“We have a very deep knowledge of any particular company we’re focused on,” says Baran. “We may have been following them for years. So when the stocks were sold off, we knew exactly what was mispriced – and mispriced by a lot.”

“There’s nothing like a good panic to create investment opportunities,” he quips.

Symphony also had luck on its side, as SVP’s portfolio companies did not have plants or facilities in the disaster-hit areas.

The firm is looking to raise capital for Sinfonietta and SVP on the back of favourable returns, says Baran. It launched Sinfonietta in 2008, exclusively trading partner capital until late last year, when it was opened to external investors. It currently runs about $20 million in assets under management, with a capacity of $500 million.

Meanwhile SVP, which has been running since 2003, has about $150 million in AUM with a capacity of $750 million. Indicative interest in both funds has been keen, says Baran, and includes investors who are looking at returning to the Japanese market following a period of uncertainty that followed last year’s disasters.

For 2012, Sinfonietta is positioned defensively so as to protect the portfolio “in the event of failure for everyone to come to an agreement over Greece, or a further slowdown in China that will affect the region”, says Baran. “But it’s also reasonably well-positioned to participate on the upside” in case Asia continues to trundle along, he adds.

Meanwhile, SVP is being positioned to favour long positions in Japanese companies. Valuations in the country are still quite low, says Baran, yielding opportunities to buy company securities at depressed prices. The fund is holding “quite a bit of cash” after exiting a portfolio company last year at a 39% premium, he adds, so reliance on leverage would be low.

“Should there be a cataclysmic event in the financial markets we’re perfectly positioned for it,” says Baran.