130/30 Not yet shining in Land of the Rising Sun
Aug 6th, 2008 | Filed under: 130/30
In March 2007, Asian Investor reported that the dawn of 1X0/X0 investing was close at hand in Japan.
“Large Japanese fund managers are looking to develop their own hedge-fund strategies as their local clients increase their exposure to such products. One of the most talked-about of these now are 130/30 strategies, which involve a 130% long position and a 30% short position, with the proceeds from the short helping to pay for the additional long exposure.”
With several mega-institutional investors and a $120b public pension fund that has recently upped its hedge fund allocation, you’d think the sun would shine on short-extension strategies.
But this month, the magazine reports:
“…2008 was supposed to be the year when the giant pension funds of Japan began to experiment with active extension structures. So far, it hasn’t happened. And while fund managers flogging these quant products say it’s just a matter of time, the possibility that 130/30 strategies and their ilk never gain traction is something to consider.”
Asian Investor cites several reasons for the slow uptake.
Firstly, it says that many Japanese institutional investors view 130/30 as a sort of proto-quant strategy. And like all quant strategies, it should be avoided. Second, investors can’t figure out if 130/30 funds are hedge funds or long-only funds. Third, Japanese investors are still trying to come to terms with risk control, and fourth, the fees are different than traditional long-only funds.
I asked Ted Uemae, President of AIMA’s Japanese chapter what he thought of these developments (or lack thereof).
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