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The history of hedge funds is rather simple. The idea for hedge funds started in the US and Europe from a new private banking need for personal money managers.
As more wealth spread from the industrial revolution, they helped to manage new wealth from family fortunes.
This specialist area has improved and refined its expertise over decades. Risk was very limited at first, focused mostly on wealth preservation.
Later, a few more aggressive managers broke away with higher returns.
The managers had to take on great personal responsibility and manage these assets in both up and down markets. Japan follows this path. Due to the private nature of the industry and the wealth level needed to participate, more recent High-Net-Worth investors were professional and accredited.
As fund manager personal reputations grew, some progressed to take on more risk.
As those higher risks became profitable and better understood, this most sophisticated area of trading began to specialize and later became today's hedge funds.
The entire industry has expanded to include endowments and a wide variety of non-profit financial institutions that has not had an equal parallel in Japan.
Early Japanese industrial elite in the 20th century, were comparatively small in number.
They did not give birth to a similar foundation of financial industry talent that became more established in Europe and the USA.
Even today, there are still very large legal differences on taxation and legal recourse between Japan and other G7 economies. This is especially true in regard to land inheritance issues.
It is important to realize that three main buckets are needed to study these differences. US based hedge funds, European based and Asia based hedge funds, most often operate from a tax-advantaged location.
Due to these geographical differences, it is not easy for the first time Japanese institutional investor to directly have personal experience on what a hedge fund is.
Few have been based in Japan or deal with them in Japanese.
At best, Japanese institutional investors view a hedge fund usually as a private investment partnership invested primarily in publicly traded securities often using financial derivatives, most often based overseas.
The need for Alternative Investment options is now high in Japan, for a wide range of economic and cultural reasons.
Pension funds, asset management companies and other professional investors in Japan, are looking at the industry closely.
Most are now considering investing in hedge funds due to changes in investment allocations.
They are also driven by recent incentives and a lack of local Japanese returns. Investment returns from both the Japanese stock & bond markets have been poor for many of the last 12 years.
In order to increase returns during long periods of declining markets like the last decade in Japan, new choices have to finally be considered. Japan's low population growth makes it imperative to consider viable change quickly.
Pension funds in Japan have a started a huge payout since 2007.
They must grow solid returns in all market conditions in order to care for Japan's present and future pensioners.
This need for better and more stable returns has started a new investment trend. More and more pension funds and other asset managers are beginning invest in hedge funds for the first time.
Alternative Investments as a term, is finally being recognized by Japanese investment committees.
In many cases, the percentage of Alternative Investments in Japan, have grown from 1% to 3% expected in 2009.
This translates into a lot of new Japanese capital about to enter the hedge fund industry over the short term.
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