Institutional Investor's Alpha Magazine - November 2007 - (Page 6)

Tozai Investment Advisory senior partner Angus McKinnon welcomes competition. covered that highly respected endowments, like Yale University and Harvard University, favored alternative investment,” says Angus McKinnon, a senior partner at Tozai Investment Advisory in Tokyo. As a result, many Japanese institutions made modest initial allocations, then ramped them up after experiencing favorable returns. Mikihiro Katsura of Daido Life Insurance Co., the country’s seventh-biggest insurer, says he had allocated ¥190 billion to hedge funds as of September and plans to add ¥6 billion to ¥12 billion by ﬁscal year-end in March 2008. Hedge funds account for about 3 percent of Daido’s ¥6.2 trillion in assets. “We go for U.S.-managed funds of hedge funds,” Katsura says. “Individual funds are too difﬁcult to follow from Japan.” Bigger institutions have more to invest than does Daido, but they tend to be more cautious. Koji Shimogama, executive ofﬁcer in charge of investment at the highly conservative No. 2 insurer in the country, Dai-Ichi Mutual Life Insurance Co., says his ﬁrm made its ﬁrst hedge fund investments in 2002 and now has ¥2.5 billion, or a little less than 1 percent of its ¥30 trillion in total assets, in funds of hedge funds. The biggest insurer, Nippon Life Insurance Co., has more than 300 individual hedge fund strategies, says Jesper Koll, president and CEO of the new Tokyo ofﬁce of Singapore-based hedge fund advisory ﬁrm Tantallon Capital. Tozai’s McKinnon, 49, an Australia-born hedge fund adviser with 20 years of experience in Japanese finance, estimates that he is one of about 200 consultants plying their trade in the burgeoning Japanese institutional mar- InvestorForum Summer market volatility be damned. Investors are not backing away from their commitment to statistical arbitrage and quantitative hedge funds. Even though 37 percent of respondents to our latest InvestorForum survey believe that quantitative hedge funds are more susceptible to dramatic capital losses than are fundamentally driven managers, the majority of investors in the category are maintaining their exposure. What type of institution do you represent? Corporate pension fund Public pension fund Taft-Hartley pension fund Endowment Foundation Other What is the size of your fund? More than $5 billion $2.50 billion to $5 billion $1 billion to $2.49 billion $500 million to $999 million $100 million to $499 million Less than $100 million hedge funds in the future? Yes No 35.9% 64.1 gives investors little insight about their strategies. Agree 44.4% Disagree 12.1 Don’t know 43.4 All statistical arbitrage funds make the same investments and trades. Agree 7.0% Disagree 42.0 Don’t know 51.0 Statistical arbitrage hedge funds typically are not correlated with the broader market. Agree 30.6% Disagree 22.5 Don’t know 46.9 Over the past decade statistical arbitrage managers have become more diversiﬁed and better at handling market turbulence. Agree 26.8% Disagree 18.6 Don’t know 54.6 Do you think quantitative hedge funds are more or less susceptible to dramatic capital losses than fundamentally driven managers? More susceptible 37.1% Less susceptible 8.6 There is little difference 21.9 Don’t know 32.4 Are quantitative hedge funds likely to outperform or underperform fundamental hedge fund managers? More likely to outperform 8.6% More likely to underperform 13.3 Performance will be the same 33.3 Don’t know 44.8 How do you expect your allocation to quantitative hedge fund strategies to change over the next 12 months? It will increase 14.9% It will decrease 1.2 It will stay the same 55.2 Don’t know 28.7 Note: Responses may not total 100 percent because of rounding. 21.1% 28.4 2.8 39.5 3.7 4.6 13.9% 6.5 22.2 11.1 20.4 25.9 If you currently invest in hedge funds or funds of hedge funds, do any of your managers use statistical arbitrage strategies? Yes 32.9% No 29.0 Don’t know 38.2 Did August’s market volatility change your view of statistical arbitrage? Yes 11.0% No 64.8 Don’t know 24.2 Do you currently invest in hedge funds or funds of hedge funds? If you answered “yes” to the previous Yes 62.0% question, how has your view changed? No 38.0 It is more negative 81.8% It is more positive 18.2 If you answered “no” to the previous question, are you considering Do you agree or disagree with the investing in hedge funds or funds of following statements? Statistical arbitrage funds use a “black box” investment approach that 6 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2007 Photo by Peter Blakely/Redux for Alpha

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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