Japan hedge funds set to outperform peers

By Alison Tudor and Jeffrey Hodgson

TOKYO/HONG KONG (Reuters) - Hedge funds investing in Japanese assets should outperform U.S. and European funds over the next couple of years because a lack of competition makes for good trading opportunities, hedge fund advisory firm said on Tuesday.

To be sure, many Japanese hedge funds still lack risk-management experience, making it tricky and time consuming for investors to pick winners. Falls in Japanese small-cap stocks this year, for example, took a brutal toll on the country's hedge funds.

"This was an outlier year.... I think the opportunity set in Japan is the best in the world for equities-based hedge funds," Ed Rogers, chief executive of Rogers Investment Advisors (RIA), said at the Reuters Wealth Management Summit. Rogers expects his upcoming fund, which puts together hedge funds for wealthy individuals and pension funds for a fee, to rack up net annualized returns to investors of 12 percent to 17 percent.

"In North America and Europe, it's harder to build a portfolio that can get you a mid-teen return," Rogers said at the summit, held at Reuters offices in Tokyo.

This year's Japanese hedge fund losses show the industry is still at an early stage of development, with too many managers chasing the same strategy and failing to deliver returns in both good and bad markets.

Eurekahedge's index of Japanese hedge funds was down 4.23 percent year-to-date as of August as the Mothers market for start-ups plummeted 57 percent since its peak in January.

The Eurekahedge index rose 23.43 percent last year, short of the Nikkei's .N225 43 percent advance, but its performance still easily topped the 12.37 percent rise in its European hedge fund index and 6.82 percent rise in its North American index.

Rogers, a former Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) executive who set up his own shop this year, expected Japanese hedge funds to outperform their peers because of a lack of competition in the fledgling Japanese hedge fund industry.  Continued...