Dai-ichi Mutual Life Insurance, with more than 30 trillion yen ($274 billion) in assets, will invest more money with hedge funds to safeguard returns as financial markets falter.
Tokyo-based Dai-ichi Mutual, Japan's second-largest life insurer, currently invests in more than 100 hedge funds as well as funds of hedge funds, Yuji Hirai, manager of the firm's structured and alternative investment department, said in an interview in Tokyo. He declined to provide specific targets for hedge fund allocations.
“Our goal is to increase our allocation to hedge funds,” said Hirai, 40. “We're in a difficult market, no doubt, but for hedge funds chasing absolute returns, this is the time to prove their outperformance.”
Hedge funds struggled to attract capital this year after the U.S. housing market collapse and ensuing credit crunch crimped returns. They collected $29 billion of new money in the six months through June, down 75 percent from a year earlier, as the industry turned in its worst first-half performance in two decades, according to Hedge Fund Research.
Dow Kim, the former head of trading and investment banking at Merrill Lynch, dropped plans to start a hedge fund after investors backed out, people with knowledge of the matter said.
Dai-ichi Returns
In Asia, the industry has fared better. Assets invested in hedge funds focused on the region grew 0.25 percent in the second quarter, as performance losses were offset by capital inflows from investors, the Chicago-based industry researcher estimates.
Dai-ichi Mutual began systematically investing in alternative assets including hedge funds in 2001, according to Hirai, who heads a team of 11 managers including one in London and one in New York.
Insurance companies “have to meet their own investment targets and I would be fairly confident that just like pension funds, their traditional portfolios are hurting right now,” said Rory Kennedy, chief operating officer of Tokyo-based United Managers Japan, a fund adviser. “It would be natural for them to increase their exposure to alternatives. The volatility across the world now is opening up opportunities.”
Allocation to hedge funds is currently in the “single-digit percentage” of assets, Hirai said. Most of the funds are run by managers in the U.S. and Europe. Hirai declined to be more specific.
'Larger Consumers'
Dai-ichi posted 3.14 percent return on assets last fiscal year beating internal targets for the first time since it began releasing figures in 2001. The company set a 3.1 percent benchmark for returns last year.
Fixed-income assets including domestic bonds accounted for more than half of Dai-ichi's portfolio at the end of March, while domestic equities and overseas securities made up 14.9 percent and 19.5 percent respectively, according to the firm's latest financial statement.
“We certainly expect Japanese insurance companies to become larger consumers of alternative investment products,” said Ed Rogers, the chief executive officer of Tokyo-based Rogers Investment Advisors Y.K., which advises clients on what hedge funds to invest in. “They are all pressed to match liabilities and assets, and investing in the absolute return space seems the only way they will be able to do it.”
Among strategies Dai-ichi invests in are so-called event-driven funds, which target companies undergoing or about to go through events such as mergers and acquisitions and asset sales; and macro funds, which can trade everything from a single stock to bond futures, Hirai said.
Seeking Opportunities
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.
In one way, the global credit contagion may be playing into the hands of hedge funds, said Hirai.
The world's largest banks and securities firms posted more than $490 billion of asset writedowns and credit losses since the tumult started a year ago, forcing them to sell stakes, unload assets and fire employees.
As investment banks retrench, star employees are moving to hedge funds, said Hirai, whose team meets with about 200 funds a year.
“Even the best managers are having a difficult time keeping up their performance right now,” he said. “But it surely is an exciting time and potentially a great opportunity for them to actually create returns for investors.”
Are hedge funds the best means to safeguard returns in times of financial crisis? Which of the other asset classes can provide similar security in investments as hedge funds?
posted by Charltonmedia.com | 11:34 PM
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