Total hedge fund capital allocated to Japan's equity markets more than doubled on a year-on-year basis to USD 72 billion at the end of 2003.

The estimates were published in a new study by the Alternative Investment Group at Daiwa Securities America Inc. The figure of USD 72 billion (estimated on a capital after leverage basis) was 16% or USD 10 billion higher than Daiwa Securities' mid-year 2003 estimate. On a capital before leverage basis, the figure came in at USD 45.6 billion.

By category, this capital growth was attributable in large part to the continued influence of global funds whose capital after leverage increased 142%. Capital from Japan-dedicated funds increased 77% and Asia including Japan funds increased 18%, end 2003 versus end 2002 data.

Highlights of the Study

* Japan's financial environment continued to show signs of improvement in the second half of 2003 benefiting a number of hedge fund strategies and not simply Japan long-short equity.

* Total hedge fund capital allocations to Japan are estimated to have hit USD 72 billion at the end of 2003 (more than twice Daiwa Securities' end-2002 estimate).

* Estimated hedge fund capital in Japan-dedicated funds hit USD 20 billion (almost twice Daiwa's end-2002 estimate).

* Total number of hedge funds allocating to Japan reached 753 of which 158 comprise Japan-dedicated funds.

* Within the Japan dedicated fund category, close to 35% of portfolio managers are physically located in Japan to reflect a subtle trend increase since Daiwa Securities started to track the data in 2001.

* Convertible arbitrage, event driven, macro and multi-strategy funds were particularly active in Japan during the second half of 2003.

* Emerging trends from the this study include the search for capacity, the growth of equity market neutral to satisfy Japanese institutional demand and the hint that more Japan multi-strategy managers may be on the way in 2004.

* The study by Ferenc Sanderson of the Alternative Investment Group at Daiwa Securities America Inc. is called "State of the Hedge Fund Industry in Japan, End 2003". For further details please contact Mr Sanderson at Email: Ferenc.Sanderson@daiwausa.com