Hedge funds prowl Japan's Ashiya City

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The number of high net worth individuals in Japan rose 2.2 percent in 2007, and accounted for 40 percent of the total wealth in the Asia-Pacific region, according to Capgemini/Merrill.

Japan's Ashiya City has been home to the nation's industrial titans since samurai ruled the land more than a century ago. Now it's a feeding ground for hedge funds tapping the wealth of new multi-millionaires like Kunihisa Sagami.

Sagami, founder of mail-order cosmetics and jewellery supplier Epix, is one of the residents of the gated enclave overlooking the port city of Kobe who are among the highest taxpayers in Japan.

They're the elite in a nation where households hold a combined $15 trillion in financial assets - more than the annual gross domestic product of the US.

Overseas hedge funds including Winton Capital Management Ltd and MKP Capital Management LLC are angling for that wealth to replenish capital after the credit crisis triggered the worst losses on record in their $1.6 trillion industry. And investors like Sagami are biting.

"I'm in the middle of shifting my cash holdings to hedge funds," Sagami, 48, said in an Oct 14 interview at his Hisashi Kobayashi-designed house on a 3300 sq m lot. "This is the beginning of the biggest bargain sale."

He confirmed last week he is still investing in the funds.

This year has been the worst on record for hedge funds, with average losses of 16 percent through October, according to data compiled by Chicago-based Hedge Fund Research Inc.

Investors pulled $40bn from the funds in October, while market losses cut industry values by $115bn, the firm said.

It isn't just hedge funds circling the wealthy of communities like Ashiya. London-based HSBC Holdings Plc opened its first HSBC Premier Centre in the Kansai region in Kobe on Oct 24 to provide wealth management for individuals.

A 40-minute drive from Ashiya, the private-banking team at the Osaka-based Sumitomo Trust & Banking Co, Japan's fifth- largest bank, also has the community in its sights.

Department chief Hiromitsu Nakagawa said he offers mutual funds that include hedge funds to individuals with more than $5.16m in financial assets.

He said many clients want to diversify portfolios that are mostly made up of inherited properties and securities.

Former residents of Ashiya include Chubei Itoh, who in 1858 founded Marubeni Corp, a linen trading business that has become the nation's fifth-largest trading company.

His descendents still live nearby, the Tokyo-based company said. Shunya Toji, former president of the company now known as Sumitomo Corp, Japan's third-biggest trading house, died in his Ashiya residence in 1961.

The global equities slump hasn't deterred Sagami, who said he was Ashiya's highest taxpayer in 2003 after annual sales from his business peaked at about $39.2m.

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