Vol.27 - Hedge Fund Strategies Explained II & Shinsei Bank Interview Part 2

**CONTENTS**

-Feature - Single Family Homes for the Small Investor
-From the Editor
-Forex Weekly
-Yen Watch
-Events
-Job Watch
*Please scroll down below to read the disclaimer*

FEATURE

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Hedge Fund Strategies Explained II
(By Sridhar Venki, MSS Capital Limited | September 22, 2005)

Investing in Hedge Funds
Hedge funds have become a core asset class. The explosive growth of the alternative asset management industry over the last few years has thrust hedge funds to the forefront of investors’ minds. The growth of the hedge fund sector has coincided with an economic and financial market environment that is one of the most challenging in recent memory. Despite this, hedge funds remain one of the most consistent performing asset classes within the entire spectrum of investment opportunities.

The performance of hedge funds compares favorably with traditional asset classes such as equities and bonds. Since December 1997*, global equities have returned an annualized 3.3% (FTSE All-World Index), global bonds an annualized 6.8% (JPM Global Bond Index) and hedge funds an annualized 8.5% (FTSE Hedge Global Composite Index). More impressively, hedge funds achieved this superior performance with just 3.9% annualized volatility, which is significantly less volatility than equities (15.7%) and bonds (7.1%).

Click here to read more....

FROM THE EDITOR

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Shinsei Bank Interview: Mortgages for Foreign Residents in Japan
Part Two: Numbers, Terms and Conditions

Shinsei's home loans are currently set to cover up to 90% of the value of a loan for a primary residence on new purchases. The valuation is from the result of a Shinsei appraisal, not the purchase price. For refinancing, the loan-to-value amount can be even more – as high as 150%, recognizing the fact that most customers' home loans from 5 or more years ago are probably now underwater. Knopp says that from a risk perspective, if Shinsei can see that a home owner with a JPY75MM loan on a house now worth JPY50MM in the market, and who has been resident in the home for more than 3 years and is still able to make their monthly payments, then the bank realizes that the customer is a good credit risk and is willing to take on that customer for the same mortgage amount.

In terms of the amount that Shinsei will loan, Knopp says that typically they work on an amount of about 4 to 5 years' of the lender's annual income, less their current debt burden. The income component is based on an analysis of your previous two year's “Gensenchoshuhyo” (yearly salary tax statements), which are issued by your employer at the end of each tax year, but which you can also request a copy of at any time. Knopp notes that if you make more than JPY12MM a year, your debt burden as a percentage of your income should be less than 40%. If you make less than JPY12MM a year, then the debt burden should be less than 35%.

In working out the likely volatility of interest rates, Shinsei advises lenders to consider the rising interest rate situation. In fact, back in 1991, the peak of the real estate bubble, rates went as high as 8%, so this is something to consider.

Of course, the big draw of the Shinsei home loans is the very low 1% per annum interest rate. On a JPY25MM loan, this equals around JPY21,000 per month, averaged out. Knopp says that he doesn't know how long the rates will stay at this level, but does say that loans currently going out are for 1% interest semi-fixed over 5 years, after which it will be re-assessed. We say “semi-fixed” because the loans are in fact pegged to the Japanese Government Bond (JGB) rate, which is currently 1.360% (09/20/2005.) If in the next 5 years from the disbursement date, the JGB rate hits 3% or higher, the Shinsei home loan rate will rise to up to 1.9% p.a.

This is a pretty good deal, so right now, majority of Shinsei’s housing loan business is from customers wanting to refinance existing mortgages. Although he is happy wherever the business comes from, he'd like to grow new purchase business, since this makes it more likely that customers are viewing the company for its own merits and not just the low rates. In retail banking, customer loyalty stems from overall perceived value.

Terrie Lloyd
・・・Investor in Training/

FOREX WEEKLY

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Team Tokyo Forex Weekly
September 15 -September 20, 2005
Yen takes a back seat.

We said it and it happened, the yen took an expected nose dive thus ending her run of good luck and handing the spot light back to the dollar in Asia. The dollar was mixed on the futures market, posting gains against the euro, yen, and loonie, while dropping considerably against the pound and the aussie. With uncertainty surrounding the German election, traders last week punished the euro against the dollar by 68% to 7,585 contracts from 23,518. Although the election is now over, the fact that a grand coalition looks likely to be formed could continue to hurt the euro.

Japanese net shorts held steady last week, increasing by only 2% to 34,934 contracts from 34,372. As the price of oil recedes and the possibility that Japan may end its battle against deflation grows, the yen could show signs of improvement in the coming weeks.

The British pound continues to improve upon its position, contrary the US dollar, hitting a four month high as its net long position jumped 68% to 18,475 contracts from 10,996.

BERLIN : Germany was left in political hell as the conservative opposition scraped to a narrow election victory over Chancellor Gerhard Schroeder's Social Democrats but crucially failed to win a governing majority.

Her preferred coalition partners, the pro-business Free Democrats, tallied around 10.5 percent, prompting its supporters to erupt in joyousness at their headquarters in Berlin. The Greens, junior partners in the current government, reached 8.1 to 8.4 percent.

A new alliance of dissidents from the Social Democratic Party and former communists known as the Left Party garnered 7.7 to 8.1 percent, effectively robbing the mainstream parties of key support in an extremely close election.

The results mean that Merkel, who was widely tipped to win the election and become Germany's first woman chancellor, may be forced into an unwieldy grand coalition with the Social Democrats which she had earlier called a recipe for "gridlock".

Nearly 62 million Germans were called to the polls after Schroeder forced through the election 12 months ahead of schedule in a bid to obtain a fresh mandate to reform Europe's biggest economy.

Merkel, former physicist, drilled home her message that only the Christian Democrats could drive down the crippling unemployment rate of 11.4 percent and get the delayed economy moving again.

Germany's European partners have long hoped for a strong economic recovery to help propel growth on the continent. The race was hard-fought and remarkably bitter by German standards, with Merkel accusing the Social Democrats of dirty tricks and lies and Schroeder charging the conservatives of planning to dismantle the country's cherished social welfare system.

The Social Democrats had killed the Christian Democrats' early lead in half in recent weeks and the entertaining Schroeder put in a few extra campaign speeches in a bid to brainwash undecided voters, reportedly about a quarter of the electorate just days before the poll.

But the results show Schroeder's chancy bid to bring the election forward basiclly failed, just a week after Japanese Prime Minister Junichiro Koizumi spectacularly won the same "lottery" in the country's general election.

Merkel has proposed creating jobs and driving economic growth with a program of income tax cuts and labor market liberalization that would go beyond Schroeder's questionable economic reform package known as Agenda 2010.

On Sunday in conservative stronghold Munich, one of the organizers of the city's world-renowned Oktoberfest beer festival said he believed the country needed to undergo the probable painful reforms Merkel is advocating.

Get this report and more in "Audio" by subscribing on our site at www.tokyo-forex-japan.com. Team Tokyo Forex, Tokyo's best kept secret.

YEN WATCH

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Currency	9/12 Mon	9/13 Tue	9/14 Wed	9/15 Thu	9/16 Fri
USD	110.45	111.36	111.59	111.49	111.82
GBP	204.13	203.50	204.36	204.04	202.92
EUR	137.19	137.13	137.40	137.12	137.07
CAD	94.53	94.60	95.18	95.05	95.01
HKD	14.51	14.62	14.66	14.65	14.69
SGD	66.27	66.62	66.71	66.68	66.86
AUD	86.81	86.63	87.05	87.04	86.70

(The above TTS Exchange Rates has been brought to you by the courtesy of GoLloyds TSB)
The above rates were posted at 10:09 on Friday, September 16, 2005 and are valid for funds received before 3:00 pm on Friday, September 16, 2005. All funds received after 3:00 pm are remitted the following day at the following day's exchange rates. The exchange rates provided are intended only as a guide. The Bank reserves the right to apply a different exchange rate if the market is particularly volatile.

EVENT

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Japan Inc Communications Presents
Yen Mortgages for Local Properties
September 29th, 2005

A Roundtable with Industry Specialists from Shinsei Bank, Plaza Homes, Banner Japan & PLATINUM.

Date: Thursday, September 29th
Time: 7:00pm – 9:00pm (Doors open @ 6:30pm)
Venue: Shinsei Hall, Shinsei Bank SFC Headquarters

          (1-8 Uchisaiwaicho 2-Chome, Chiyoda-Ku)

Cost: FREE (RSVP required)

*Interested parties, please RSVP online or by Fax(Download Form.pdf)  with your name, company and Tel/Fax numbers by Thursday, September 22.

Complete event details at www.japaninc.com/mortgages/index.html

JOB WATCH

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Brought to you by DaiJob, Inc – providing jobs for bilinguals.

- Business Analyst for Equity Systems (JPY 9-10M)
- Credit Derivatives Development Manager/BL (JPY 14-20M)
- Risk Developer - Team Leader/BL (JPY 17-20M)
- FI Trade Support Staff (JPY 5.5-6.5M)
- Analyst - Senior Analyst, TCS (JPY 8-10M)

Check out these and other jobs like these here!

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Edited by Burritt Sabin (editors2@japaninc.com)

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Disclaimer: This commentary is designed to help foreigners living in Japan understand the financial and investment opportunities available to them. It is NOT intended to constitute professional financial advice or an inducement to purchase the services and products mentioned. A condition of subscribing to this newsletter or reading this web site is that any actions taken by readers as a consequence of reading this column shall be the sole responsibility of the reader and no liability, implied or otherwise shall be assumed by Lloyd, Japan Inc. Communications, or other business entities related to either person.

© Japan Inc. Communications, 2005

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