Shuhei Abe, president and CEO of Sparx Group Co., spent decades outwitting the volatile Japanese equity market. After founding Sparx in his Tokyo apartment in 1989, Abe grew it into Asia’s largest hedge fund firm despite his country’s economic sluggishness; in 2007 its assets under management peaked at $15 billion.

But the financial crisis hammered Abe’s shop, which focuses on Japanese companies and the Asian companies that do business with them. Publicly traded Sparx hasn’t made money since fiscal 2009, when it squeaked out a net profit of ¥398 million ($4 million) after losing ¥23.3 billion the previous year. Although redemptions have been modest, its assets now stand at about $7 billion.

These troubles pushed Sparx, whose strategies include long-short equity and global macro, to rethink its view of Japan as a market distinct from the rest of Asia. “In the past, after the winter storm finished, spring comes and summer comes,” says Abe, 57, at the firm’s Hong Kong offices. “However, this time I realized I cannot wait for next spring and summer because the change is more structural. I realized that investing in Japan and Asia with separate strategies would not work and that we should look at Asia as one system.” ....

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