Hong Kong-based investment firm Sengu Capital is gearing up to launch a new hedge fund that will look to tap into Japan’s financial market resurgence by employing an investment strategy focused on improvements in corporate management in the country, according to a report by the Japan Times.
The report cites Chief Investment Officer Yoshihiko Ohira and Chief Operating Officer Xavier Fanjaud as confirming that the new fund is set to begin trading in early October.
The Japan-focused fund has gained multi-year backing from HS Group, a Hong Kong provider of strategic capital to emerging fund managers, in exchange for a share of the fund’s fee revenue.
Investors are increasingly looking to Japan as it recovers from a long period of deflation, while China’s economic slowdown adds to Japan’s allure. Despite this, the number of hedge funds focused on Japan has remained relatively stable, according to Preqin data from mid-July.
Traditionally, Japanese firms were known for opaque leadership succession, often promoting internally based on seniority or selecting leaders with close ties to controlling shareholders. However, this is changing, with more companies embracing western-style corporate governance, using nomination committees to appoint management.
“More Japanese companies are improving governance and choosing new management through nomination committees, with more cases of CEOs coming from outside,” said Ohira. By 2022, over 80% of Japan’s prime market-listed companies had implemented nomination and remuneration committees, according to Japan’s Financial Services Agency.
Sengu plans to invest in around 400 medium-to-large Japanese companies with high market liquidity, maintaining both bullish and bearish positions across about 50 stocks. The firm’s strategy involves betting on companies where improved management boosts efficiency and profit margins, while shorting companies with weakening fundamentals due to poor management or changing industry conditions.
As inflation returns to Japan, Sengu aims to leverage this environment, seeking a net exposure of 20% to 30% between its long and short positions. This sets the fund apart from other Japan-focused hedge funds, which are often driven by activist investors with a long-biased approach or market-neutral traders.
