Singapore Hedge Fund

Alternative asset management in Singapore

Darwin Japan Hedge Fund Returns 31% Since January on Small Caps

Darwin Capital Premier LS1 Fund, a hedge fund investing in Japanese stocks, has returned 31 percent since opening to investors in January as bets on companies including JP-Holdings Inc. and Daiken Medical Co. paid off.

The fund, advised by DarWin Capital Partners Ltd., began on Jan. 20 after running under a limited partnership structure since June 2006, according to Takafumi Sahoda, founding president of Darwin Capital in Tokyo. Prior to the January start, the strategy returned 224 percent in the 27 months through October 2008 compared with a 54 percent slide in the benchmark Nikkei 225 Stock Average in the same period, he said.

Sahoda wants to grow the fund’s assets under management to 3 billion yen ($31 million) by the end of 2010 from the current 400 million yen. The fund invests in Japanese listed companies with a market value of up to 100 billion yen using a long-short strategy that bets on rising and falling prices.

“What I’ve learnt over the years is that doing the legwork to find good investments bears fruit,” said Sahoda, 33, who formerly worked at Daiwa SB Investments Ltd. and Nissay Asset Management Corp. “When it comes to investing in small-to-medium cap stocks, it’s very important that you find ways to exit given the limited liquidity.”

Sahoda set up the firm in April 2006 in the wake of the so- called “Livedoor shock,” when executives at Internet provider Livedoor Co. were arrested for fabricating profits, sparking concerns about the finances of second-tier companies.

That contributed to a 34 percent slide in the Japanese small-cap market that year as measured by the Jasdaq Stock Index, a benchmark for Japan’s smaller companies.

JP, Daiken Medical

The fund has invested in Nagoya prefecture-based JP- Holdings, which operates daycare centers in Japan, and is expected to benefit from government subsidies for working parents, Sahoda said. JP-Holdings has gained 96 percent this year, compared with the 0.2 percent decline by the Jasdaq index.

Daiken Medical, an Osaka-based medical equipment maker, has also contributed to the fund’s gain since going public in March. The company, which owns patents for medical devices, has risen 71 percent since its initial offering price.

Managers of Japanese long-short funds have returned 5.5 percent this year through June, compared with a 9.4 percent gain by global hedge funds, according to data by Eurekahedge Pte. Darwin’s Premier LS1 fund has returned 20 percent through July 8 since inception after fees.

Investors of the fund, managed by United Investments Co., currently consist of high net-worth individuals in Japan, according to Sahoda. He aims to attract new investors such as pension funds and fund of funds in Japan and abroad.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

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