Symphony Financial Partners, co- founded by an ex-Goldman Sachs (GS:US) Group Inc. trader in 2003, is seeking $1 billion from investors after its Japan-focused hedge fund returned more than four times its peers.
David Baran, co-chief executive officer of Tokyo-based Symphony, is targeting about $500 million in new allocations for the $200 million SFP Value Realization Fund, which invests in Japanese companies and works with management to prompt corporate actions such as share buybacks, he said. Symphony is also opening up the $21 million Sinfonietta fund, an Asia-focused macro fund, and looking to raise $400 million to $500 million from outside investors for it, he said.
Baran, who traded stocks and equity derivatives as a proprietary trader at Goldman Sachs and Lehman Brothers in Tokyo, is seeking to entice investor appetite with his fund performances as hedge funds globally struggle to capture new allocations. The Japan fund has returned 16 percent through April this year, beating the 3.6 percent return by the Eurekahedge Hedge Fund Index, while Sinfonietta fund gained 6.8 percent this year, according to Baran.
“Our Japan experience has affected our world view, which has aided performance,” Baran said in an interview from his Tokyo office. “It’s timely to increase our exposure and assets as unlocking value is becoming easier with a dramatic increase of corporate actions in Japan.”
Japan’s stock benchmark Nikkei 225 Stock Average has added 2.1 percent this year, rebounding from last year’s 17 percent slide, and is trading at 1.38 price-to-book value. A reading below one means a company can be bought for less than the value of its assets.
Baran plans to achieve the fundraising targets within the next two years. Symphony’s current investors are pensions, endowments, funds-of-hedge funds, family offices and high-net- worth individuals, he said.
The Value Realization fund has gained 57 percent net of fees since inception in September 2003, during which the Nikkei 225 Stock Average (NKY) declined about 5 percent, according to Baran. The fund invests in 15 companies with average market capitalization of $200 million to $300 million because companies that size tend to have the “greatest mispricing,” he said.
“From the beginning, we have held that the Japanese equity market is highly inefficient -- nowhere else in the world do price and value diverge like in Japan,” Baran said. “The lack of a market for corporate control can lead to huge disparities between price and value.”
Among the contributors to the fund’s recent outperformance was Nagawa Co., which makes, sells and rents prefabricated offices and stores, Baran said. Symphony worked with the management of Nagawa to buy back its own shares to boost the stock price, because shares were trading below their intrinsic value despite their strong earnings and dividends, he said. Nagawa announced a plan to buy back 6.6 percent of its shares on May 21 and has gained 29 percent since then.
Sanjo Machine Works Ltd., which makes auto parts for companies including Honda Motor Co., was another contributor to the fund’s performance. Symphony prompted a management buyout of the company last year, Baran said.
“We seek situations where we can work closely with management to cause that huge gap between where the shares are traded and what the whole enterprise is worth to close,” Baran said, adding that the number of management buyouts is increasing in Japan where deal premiums have averaged between 50 to 60 percent.
“More deals will be done in the future as banks are now highly supportive of corporate actions,” he said.
Sinfonietta fund, which seeks to profit on macroeconomic trends by wagering on bonds, currencies, stocks and commodities, started in 2008 with partners’ capital and returned 29 percent in 2011, Baran said. The gain compares with the 1.2 percent decline by the Eurekahedge Macro Hedge Fund Index of similar funds last year.
Symphony was co-founded by Baran and Kazuhiko Shibata, who was an M&A and real estate banker at Nomura Securities Co. in New York and Tokyo, according to the company.
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