Ex-Day Traders’ Hedge Fund Returns 20% With Nikkei Options Bets

By Tomoko Yamazaki and Komaki Ito
Nov. 9 (Bloomberg) -- Harpstar fund, run by former day traders, returned more than 20 percent since starting in July by investing in Nikkei 225 options as volatility gauges worldwide surged amid Europe’s sovereign debt crisis.
The fund started with about 2 billion yen ($26 million) on July 29 and has boosted assets to 3.2 billion yen through performance and new allocations from high-net worth Japanese individuals, said Kyosuke Shirasaki, chief executive officer of Harpstar Partners LLC. Shirasaki and Masato Tanaka, partner of the firm, aim to raise 5 billion yen over the next year with a target return of 50 percent, they said.
Shirasaki and Tanaka, who met as university students with a shared interest of investing in the Japanese market, have managed to raise money from investors without boasting experience at major financial institutions. Japan’s hedge-fund market has more than halved to manage $16.4 billion, down from a peak of $39 billion in 2006, and compares with $117.4 billion managed by funds in Asia outside of Japan, according to Eurekahedge Pte.
“Our challenge is that we have no track record at major institutions, so we have to prove our worth to investors with our performance,” Shirasaki, 28, said in an interview in Tokyo yesterday. “On the other hand, our experience as day traders means we trade quite frequently to capture the best investment opportunities.”

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The fund currently only invests in Nikkei 225 options and uses futures as a hedge, according to Shirasaki. Options give investors the right to buy or sell securities at a predetermined price. The higher the volatility in markets, the more returns the fund tends to generate because of price differences between the actual securities and the predetermined price. The Nikkei Stock Average Volatility Index has surged 48 percent this year.
The fund would usually trade its positions in a day or two to maximize opportunities and reduce volatility, said Tanaka, 29.
The two began investing when they were 18 years old as online brokerages emerged with the Internet, cutting costs for individual investors, said Shirasaki.
They graduated from universities when the Japanese market was suffering from the so-called “Livedoor shock” in 2006, when executives at Internet provider Livedoor Co. were arrested for fabricating profits, sparking concerns about the finances of second-tier companies, according to Shirasaki.
The firm is managing the fund under a structure which limits the number of investors, and plans to expand to cater to larger investors as it grows, Shirasaki said. Harpstar, named after the Greek word vega in option trading meaning volatility, plans to broaden its investments to overseas options, he said.
“We’ve had quite a volatile market in the past decade,”
Shirasaki said. “We are ready to take profits within a day if needed and that’s the kind of mindset stemming from being a day- trader, so the idea of making money every day will be the base of our investments.”