Ken Griffin’s hedge fund Citadel plans to reopen its Tokyo office later this year, almost a decade and a half after shutting down its Japan operations during the global financial crisis.
The hedge fund, which manages $54bn in assets, is applying for licences to operate in Japan’s markets and expects to gain approvals before the end of this year, according to three people familiar with the matter.
The expansion by Citadel, among the world’s biggest hedge funds by assets under management, comes as others investors including the activist fund Elliott have been expanding their Japan-focused teams.
Managers at more than a dozen hedge funds and private equity groups said investors were targeting Japan, where more than half of all listed stocks trade below book value, in expectation of unlocking returns.
One of the people familiar with the situation said Citadel was waiting to receive its licence following the opening of offices for affiliate Citadel Securities in Tokyo for the first time this year.
“It comes back to talent,” said one person with direct knowledge of the firm’s thinking. “There’s enough talent that wants to be based in Japan now.”
Citadel declined to comment.
The surge of global interest in Japanese securities reflects a stark turnround from the state of the country’s markets when Citadel closed down its operations in Tokyo more than 14 years ago, during the depths of the global financial crisis.
The hedge fund shuttered its 12-person Tokyo office in late 2008 as part of wider cuts that included closing its principal investments team in Asia and slashing 25 positions in Hong Kong, which then became the company’s sole base of operations for the region.
Citadel suffered badly during the financial crisis but has gone on to post returns well ahead of its peers.
Last year it delivered $16bn in profit to investors — the largest ever annual gain by a hedge fund — on the back of bumper returns from the firm’s energy trading and commodities operation.
Another person familiar with the firm’s plans said Japan’s large and liquid market was a factor behind Citadel’s decision to reopen in Tokyo.
Nicholas Smith, Japan strategist at CLSA, said the arrival of new investors and return of others to Japan made sense. He said Tokyo stocks had earnings per share growth over the past decade that outstripped the US’s S&P 500 index, but mostly sagging valuations.
“Balance sheets are an Aladdin’s cave of excess assets — it’s open season for activism and the mandarins are finally, unequivocally on board,” said Smith, referring to the rising levels of official support for governance improvements and greater corporate focus on shareholder interests.
Source: Financial Times