The Four Reasons Why Hedge Fund CAI Liquidated Its Entire Japan Portfolio

Eddie Tam

Photo: Hedge Fund Intelligence

Eddie Tam’s Asia-focused hedge fund Central Asset Investments cut its entire exposure to Japan within 3 days of the earthquake, according to Reuters.Before the quake, Tam’s ~$250 million CAI had about 15% of its portfolio in Japan.

For now, it’s hurting. CAI is currently down 4% since the quake and about half of those losses are related to Japan.

Regardless of the losses, he thinks its a safer bet than staying in for a few reasons, according to The Province:

  • “I think, first of all, they cannot afford the reconstruction easily because of the already very stretched fiscal condition.” (Goldman Sachs disputes this and says relative to its total debt, the cost of the damage is relatively small.)
  • To finance the reconstruction of the vast part of northeast Japan, it’s possible that Japanese insurance firms might liquidate their portfolios.
  • “Boosting dividends, enhancing [return on equity], all those things which actually may entail cost-cutting and not further investments, I do not think those are the priorities of the country.”
  • The disaster could make Japan go ahead with reforms, including to its immigration and mergers and acquisitions policies, but any such reform would not be an immediate priority.

Overall, his reason to divest seems to be this:

“It is not really prudent to guess the outcome of the nuclear incident at this point in time,” he told the Canadian paper, which says he has no immediate plans to move back into Japan.

“I am not in the camp who thinks that this will blow over very quickly,” he said.

Here’s a bit more on Tam from Hedge Fund Intelligence:

Before CAI, Tam was the head of sales and marketing of Asian derivatives at Credit Lyonnais. Before Lyonnais, he worked at Merrill Lynch and Salomon Brhters in equity derivatives and programme trading.

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