State Street Global Advisors in Tokyo is launching a market-neutral long/short Japanese equities fund on March 29 aimed at Japanese institutional clients, mainly pension funds. The vehicle, which has already garnered Y2 billion in commitments from clients, is the first alternative investment fund that SSGA Japan will market and manage, says Eric Michel, president. It reflects an ongoing strategy by SSGA to build a flexible and integrated structure of funds for Japanese clients.
Koji Yamamoto, head of marketing, says demand among pension funds is rising for this kind of strategy, in which the firm goes long stocks it favours and short ones it doesn’t, but maintains a market-neutral stance. It follows on a similar fund SSGA launched in Europe last year, and which the firm has marketed in the US for 10 years.
In Japan, with long-term interest rates below 2% and short-term rates below 1%, corporate pension funds face massive underfunding problems. The equities market has been in the doldrums, however, and international investments create foreign exchange risk. Yamamoto says alternative investments uncorrelated to Japan’s capital markets offer better returns.
Michel notes that while rivals have offered long/short strategies to Japanese clients before, most of these funds tend to be net long. “Ours may be the first fund that’s truly market-neutral,” he says. Chuo Mitsui Trust & Banking is acting as the trust bank for the fund, and is participating in both marketing and quantitative research.
Yamamoto explains this fund forms part of a process of building a ‘mother-baby’ structure of alternative funds, which is a more integrated approach than a hedge fund of funds. A provider can establish a series of ‘mother funds’ such as a mother equities fund and a mother fixed-income fund, or a passive mother and an active mother. Then it sets up several baby funds that invest only in the mothers, maybe just in one or across mothers. Each baby will come with different structures for fees, distribution and so on.
The long/short Japanese equities fund is an equities mother. SSGA already has an international equities mother fund, and has also just launched this month a global fixed-income mother fund. Beneath these it is setting up several babies, such as one baby fund for equities that is hedged and another that is not.
The Japanese equities mother fund will be joined in the future by a Japanese fixed-income mother fund. Then a series of baby funds can be set up that will invest in the four mothers to different degrees, creating a series of asset allocation options for clients.
