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Japanese hedge funds struggle to raise assets

Performance and regulatory changes make raising capital tough.

Japanese hedge fund managers are finding it difficult to raise money, say industry participants. According to Eurekahedge, Japanese hedge fund assets rose $11 billion from $29 billion to $40 billion over 2006. Although this is a 30% increase, it is a small proportion of hedge fund assets globally given that Japan is a major financial market. Total hedge fund assets are estimated to be near $2 trillion, and last year’s growth globally is estimated at $500 billion.

There are several issues at play, say funds of hedge funds, although the poor performance of funds in 2006 is crucial. "Japanese managers have had greater difficulty raising capital recently than, say, two years ago," says Tom Sandlow, senior vice-president and global director of manager research at Tremont Capital Management. "There is a higher concentration of long/short equity players in Japan, and that strategy as a whole performed poorly last year. In 2005, Japanese long/short players produced high returns because of bets on small caps, which were significantly undervalued. In 2006, however, that opportunity had gone and small caps were trading at equal value or a premium to large caps. Some managers were late adjusting and performed poorly."

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