Research

Albert Saporta is AIM&R's founding partner and has 17 years' experience in global financial markets. The Firm has a team of 5 professionals with offices in Geneva and San Francisco. Before starting AIM&R, Mr. Saporta worked for IFM, UBS Securities, Merrill Lynch and Paribas. He currently runs two hedge funds, the SOG Fund (global multi-strategy arbitrage) and SOGAsia. The SOGAsia fund is an Asia including Japan, multi-strategy arbitrage fund. It employs structure arbitrage, closed-end fund arbitrage, pair trading, merger arbitrage and event driven strategies. The SOGAsia Fund was launched in July 2002 and was +1.4% for 2002. Mr. Saporta is based in Geneva.

Interview with Albert Saporta

1. The SOGAsia Fund has a strict stop-loss of 3% maximum drawdown of NAV. How did the risk controls work during Henderson Land's failed cash takeover of Henderson Investment in January?

   In the case of a 3% drawdown, the fund must be de-leveraged. However, at that time, SOGAsia was actually underleveraged, and therefore we did not have to reduce overall exposures. That being said, there are also individual loss limits, and in the case of Henderson Investment, that limit was reached on the first day of trading after the negative shareholders vote. As such, 2/3 of the position was closed in the first 2 days. We decided to stay with 1/3 of the position and re-hedged it with a short position in HK & China Gas, Henderson's largest holding. This had been our original position prior to the takeover bid. By the end of January, we had reclaimed about 25% of the loss, and the rest of the position was closed.

2. Is the focus of the Fund predominantly Japan? How have arbitrage opportunities been in Japan since July 2002? How do you see opportunities for 2003?

   The focus is not predominantly Japan and really depends on opportunities. That being said, since Japan is a much larger market than the rest of Asia as a whole, we tend to be more concentrated in Japan (at present it is 60% of the Fund). The Fund also has a Yen class which only invests in Japan.

   Arbitrage opportunities have been plentiful in Japan. Since the launch of the fund, SOGAsia has been successfully involved in a dozen of Japanese merger arbitrage deals. Going forward, we think deal flow will continue to increase. In particular there will be continuous deal flows from parent companies buying their subsidiaries. Also we expect foreign buyers to be active. In addition to merger arbitrage, we have been active in holding company/stubs arbitrage strategies, as well as utilities pairs trading. Japan provides a fertile ground for such strategies.

3. Do you think that the recent merger between Konica and Minolta is the start of a "big bang" in Japanese M&A activity?

   It's an industrial deal amongst many others. You're seeing mergers in all kinds of industries. It started with financials (banks, insurance). Now is the time for industrial restructurings and mergers (Konica/Minolta but also NKK/Kawasaki Steel or Mitsui/Sumitomo Chemical, for example). It seems that Japan is slowly waking up to the need to rationalize. At the same time, I think that the majority of deals in the near future will continue to be parents/subsidiaries.

4. Has the decrease in liquidity throughout Asia been a restraint on arbitrage strategies?

   We find liquidity to be less of a problem in Asia and Japan than in Europe.

5. Two of the Fund's largest positions are in Japan capital structure arbitrage: long Ito Yokado/short 7-11 and long Renault/short Nissan. What is the current status of these trades and have they worked as planned?

   The Ito Yokado trade has been quite successful and we have exited part of it. On the other hand, the Renault/Nissan trade is losing money.

6. The advisory company is based in Geneva; what is the current appetite in the city for hedge funds with an Asian strategy?

   We have not really started marketing SOGAsia, which is mainly proprietary capital. We also do very little marketing in Europe and most of our investors are US based.

7. You have stated that one of the reasons for launching the Asia only hedge fund was that the Asian trades in AIMR's global fund (SOG) were the best performers. Is this still the case?

   Best performing strategies in SOG (global product) have been the US and Japan books. Since September 1999 (launch of SOG.), Japan made more than 60% gross return on capital compared to a loss of more than 45% in the TOPIX Index. Last year, although SOG was down, gross return on capital on SOG's Japan book was about 10%.

8. What are you views on two arbitrage strategies that you have not been principally involved in: CB arbitrage and ADR/local share arbitrage? Are they relevant in Asia?

   We don't do CB arbitrage because we have no expertise. ADR/local arbitrage does come under our mandate, but we haven't found any compelling trades so far since the launch of SOGAsia. We were involved in a few such trades in SOG.

9. It is commonly viewed that arbitrage strategies have to leverage up to the high single digits in order to make money off some very small spreads. Is this the case in Asia?

   SOGAsia's current leverage is 0.8, i.e. we are un-leveraged. SOG likewise is rarely leveraged and when it is, it is fairly conservative (1.5-2 times max). That being said, we feel leverage could be higher in Japan's merger arbitrage strategies as deals have a much smaller probability of breaking down.