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Hedge Funds the Best Way to Invest in Japanese Equities

Edward Rogers, CEO and CIO of Rogers Investment Advisors, believes that hedge funds are the smartest way - quite possibly the only sensible way - to invest in Japanese public equities.

  • Henry Stokes

Sitting in his Tokyo office, Edward Rogers bellows with laughter. In the five difficult years since he launched his own fund-of-hedge-funds firm, the CEO and CIO of Rogers Investment Advisors has kept his sense of humor.

Although some might question the sanity of opening a hedge fund business in Japan, Rogers’s good cheer and persistence in rough markets have paid off. As of September 30 the $100 million Wolver Hill Japan Multi-Strategy Offshore Fund he advises had gained an annualized 2.4 percent since its October 2006 inception. The Tokyo Price Index fell 14.4 percent during the same stretch, while the Eurekahedge Japan Hedge Fund Index rose just 0.7 percent.

Rogers, 46, beat the indexes with one quarter the volatility of the Topix. “Hedge funds are absolutely the smartest way — quite possibly the only sensible way — to invest in Japanese public equities,” he says. “We have allowed our investors to sleep well at night.”

The same can’t necessarily be said for Washington native Rogers, who first came to Japan in 1987 and has lived there on and off for 17 years. Things haven’t turned out the way he hoped in 2006, when he quit his job as Deutsche Bank’s head of Japanese prime services sales to go solo. His plan was to raise $500 million, mainly from U.S. investors, for a Japan fund. But amid rumors that Japan Inc. was headed for a fall, he only managed to cobble together $4 million.

Rogers Investment Advisors has since boosted its advisory assets to some $140 million, with almost $40 million committed to a new all-Asia fund that Rogers is pitching globally. The firm has grown from a two-person start-up to an 11-person company with offices in Tokyo and New York, where Rogers-owned Wolver Hill Advisors officially does all the trading for the Japan Multi-Strategy fund.

When it comes to trades, there’s little doubt that Rogers’s Tokyo team calls the shots. But this overseas setup speaks to the challenges of running money in Japan — even for Rogers, a Japanese speaker who got to know the hedge fund fraternity well during his half decade at Deutsche Bank. Unlike Hong Kong and Singapore, his adopted country doesn’t smile upon hedge funds. “Japan is the hardest place in the world to do business,” says Christopher Wells, a partner with law firm White & Case in Tokyo, where he heads the local chapter of the Alternative Investment Management Association.

Rogers, who has a BA in history from Princeton University and an MBA from Georgetown University, counters that Japan rewards skilled managers. Besides, the local competition is dwindling. Rory Kennedy, COO of Rogers Investment Advisors, says the firm has about 75 rivals in the Asian fund-of-hedge-funds space, but most of the Japan-based shops have long since left the country. “They could not hack it here; we can,” Kennedy scoffs. He and Rogers stayed put after the March earthquake, when many other Western executives and their families bolted.

The firm employs a mix of Japanese and foreign talent. A former Deutsche colleague, Kennedy reunited with Rogers from Tokyo hedge fund platform United Managers Japan, where he served as COO. Yoshiaki Iizuka, head of Japanese research, was previously CIO of Tokyo-based Traders Investment Management. Rogers’s past includes two years at Merrill Lynch & Co.’s London proprietary trading desk before he joined Deutsche’s Tokyo office in 2001.

The Japan Multi-Strategy fund currently invests in 14 hedge funds with strategies ranging from equity long-short and statistical arbitrage to activist and credit. As the world’s second-largest developed economy, Japan offers hedge fund managers the widest and deepest opportunity set in Asia, Rogers says: “This allows us to create a truly diversified portfolio with consistently lower volatility than most hedge funds and all long-only indices have offered.”

Rogers has just one conspicuous Japanese investor, a large institution for which he manages about $80 million. But he’s noticed that Japanese pension funds are moving toward hedge fund investments for active equity exposure, just as their U.S. counterparts started doing a few years ago.

Rogers and Kennedy credit their performance to due diligence — the CEO compares himself to statistics-driven Oakland Athletics general manager Billy Beane, played by Brad Pitt in the recent movie Moneyball. Rogers and his team have checked out more than 400 funds in Asia, spending ten to 20 hours at each manager’s office.

In the years ahead Rogers wants to grow the Japan Multi-Strategy fund to $500 million. He’s set a target of at least $125 million for the new Wolver Hill Asia Emerging Manager Fund. Having won commitments from the U.S. and the Middle East, he’s talking to South Korean and Japanese institutional and sovereign investors.

Months like August, when his flagship fund was down only 1.5 percent while the Topix plunged almost 12 percent, keep Rogers laughing. So many investors regret missing the opportunity to make a 50 percent profit, he says: “What they don’t understand is that the most important thing is to ‘miss’ the opportunity to lose a fortune.” • •