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Hedge funds size up to Japanese demand

Japan's institutions are increasingly investing in hedge funds. But getting a fund off the ground in Japan is a tough task – institutions prefer large funds, but with few individual Japanese willing to invest it's hard to boost size. Helen Avery reports.

TWELVE MILLION JAPANESE play golf. Makoto Kikuchi is no longer one of them. In 2003, he set up a hedge fund, Myojo Asset Management, named after the first star to appear in the night sky. Since then free time has become a thing of the past. "Over the last 12 months, the pace of money flowing into the fund has suddenly accelerated," he says. The Japanese long/short equity fund has attracted more than $100 million in assets, and the closing level of $400 million could well be reached by the end of this year. Kikuchi is one of an increasing number of hedge fund managers to recognize the potential of the Japanese market. In 2004, Japanese institutional investors, which have $4.5 trillion in investable assets, increased their allocation to hedge funds by 41%, and it is conservatively estimated that allocation from all Japanese investors will increase by a further 44% by the end of 2007. Demand is far outstripping supply in a market that has unique characteristics and is difficult for providers to enter. With forecasts like these, Japan can be a guaranteed source of assets for hedge fund managers that illustrate commitment and offer a strong track record.

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