Will activist fund succeed in Japan?

Privee Investment Asia will soon launch a $100 million long/short equity fund, profiting in both falling and rising markets, that will initially invest in Japanese small cap firms, the Japanese fund group's head said.

Privee Investment Asia is part of Privee Investment Holdings, a Tokyo-based activist investor, which takes big stakes in underperforming and poorly run Japanese firms with a view to turning them round within two to three years.

"We're going to launch a long/short fund," Masano Yoshitake, Privee Investment Asia's Managing Director and Chief Investment Officer, said at the Reuters Hedge Funds and Private Equity Summit in Singapore.

"We're looking to launch this year. All the documentation has been completed. We're just looking for the right timing."

He said the fund was aimed at institutional investors, including funds of funds, endowments and family offices.

Hedge funds pursuing a long/short strategy are supposed to profit in both rising and falling markets by combining a group of long stock positions with short positions of stocks or stock index futures.

Last October, Privee launched its Privee Japan Fund with 3 billion yen ($29.3 million) in seed money from its parent company to invest in Japanese companies.

"Our strategy is to build up significant stakes in those companies, 30, 35, sometimes 50 percent," Yoshitake said. "We are still in the process of accumulating the positions."

Yoshitake, who previously was a portfolio manager at Allianz Global Investors, said that while Privee was seeking seats on companies' boards it was not looking for aggressive management reshuffles.

Its target firms usually trade at a price/book ratio of 0.2 to 0.3 times and its investment horizon is two to three years.

"The investment return on individual stocks could be 100 percent or more. Our target return on the portfolio would be 20 to 25 percent per annum," Yoshitake said.

Seiji Himuro, Privee Fund Group's co-chief operating officer, said the fund had opened an office in Singapore to profit from easy access to investors and favorable regulation.

Himuro is a co-founder of Privee Investment Holdings and previously ran the Tokyo proprietary trading desk of Salomon Brothers, where he also worked with John Meriwether, co-founder of the Long-Term Capital Management fund which imploded in 1998.

Will the institutional investors bite?