01/25/2012

Japanese Bank Retreating From Hedge Funds

Japan’s largest bank is pulling $2.5 billion from funds of funds managed by BlackRock, Grosvenor Capital, Mesirow Financial and UBS.

Bank of Tokyo-Mitsubishi UFJ submitted yearend redemption requests for the full amounts it had invested with BlackRock, Grosvenor and Mesirow, while only partially withdrawing from UBS. The bank expects the requests to be fully honored by the end of March.

The investments represent the bulk of the Tokyo institution’s $3 billion hedge fund portfolio. The bank will still have about $500 million of proprietary capital in vehicles run by Blackstone and UBS.

The withdrawals amount to a sharp pullback for an institution once recognized as among the world’s biggest hedge fund investors. When Tokyo-Mitsubishi absorbed UFJ Holdings in 2006, they had a combined $7 billion invested in hedge funds — more than

any other single investor at the time, one market player recalled.

Why the retreat? Sources said the latest round of redemptions was prompted by a combination of performance concerns and new rules restricting how banks can invest their proprietary capital.

“With Basel 3 and Dodd Frank, it’s kind of unclear for banks right now what they can stay invested in,” a Tokyo-based broker-dealer said, referring to the Bank for International Settlements’ Basel 3 rules and the Dodd-Frank Act in the U.S.

Bank of Tokyo deploys capital to hedge funds via its securities investment department. The investment team is headed by portfolio manager Akihiro Toyoshima.

Over the years, the bank has shown a clear preference for blue-chip fund operators. Grosvenor, among the oldest and biggest fund-of-funds managers, has $24 billion of assets. BlackRock runs about $20 billion via multi-manager vehicles. Mesirow’s fund-of-funds business, Mesirow Advanced Strategies, manages $14 billion.

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