Instinct Capital Unveils Japanese Event-Driven Hedge Fund

by: FINalternatives

Sydney, Australia-based Instinct Capital recently launched its first hedge fund, a Japanese event-driven vehicle.

The Instinct Japan Opportunity Fund began trading on Dec. 1 and is being managed by Fred Eechaute, who before founding Instinct earlier this year with partner Stephen Good was responsible for the Japanese equity long/short event driven book at DKR Oasis Japan.

“Japan is a market where no one has invested recently,” Eechaute tells FINalternatives. “It is really a market with great opportunity and very few players.”

Good, who heads up business development at the firm, estimates that there are only 50 Japanese-focused hedge funds, and he explains that Instinct is different than most of them because of its strategy.

“We distinguish ourselves from people in the industry who are doing long/short equity because we have five different strategies—corporate actions, special situations, tactical trading, fundamental catalysts, and capital raising—that allow us to take advantage of what the market presents,” says Good.

“Because of the performance of the market over the last 15 years, there has been a dearth of people willing to commit their careers to Japan…people have been unwilling to learn the market,” says Good, a native Australian who has lived and worked in Japan for 12 years.

Eechaute adds that not only have hedge fund managers been unwilling to focus on the market in Japan, but because of cultural and linguistic differences, it is often hard for managers to find great opportunities.

“People don’t have the experience, the network or the language skills,” says Eechaute, a French national who first moved to Tokyo when he was a teenager, and has since spent a total of 15 years in the country and is fluent in Japanese. “You need to speak the language and you need to have long-term relationships [in order to succeed].”

This is not the first time Eechaute and Good have worked side by side. The two previously worked together at Mizuho Securities, and their third partner, Anita Lam, who runs trading and operations at Instinct, also previously worked with Eechaute at DKR Oasis. The firm is bringing a Japanese trader onboard by year’s end.

The team will be looking to build a portfolio across the top 200 liquid names of the TOPIX. The fund will specialize in short term events with an average investment horizon of five days or less. In addition to its five strategies, the fund managers are putting a particular emphasis on offering transparency, liquidity and risk management. According to Good, the strategy also lends itself to managed accounts, which are becoming increasingly popular.

The market-neutral fund, which launched with seed capital from high-net-worth individuals, friends and family, will hold a soft close at $200 million. Good expects follow-on investments from institutional investors in the coming months. It has a 15%-20% target return regardless of market conditions with relatively low volatility. Redemption is available with 30 days' notice and fees are 1.5% for management and 20% for performance. The fund utilizes Imagine Software for its risk management system and has appointed Credit Suisse as its prime broker.