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I had an interesting conversation with a hedge fund manager today, during which it became quite clear to me that we may be mere years away from profound economical and political changes in Asia. Japan's Debt It is a well known fact, that Japan has a tremendous amount of outstanding public debt, amounting to around 200% of Japan's GDP. In comparison, Greek public debt stands at an equivalent of about 110% of GDP. The reason this pile of debt doesn't trigger a crisis alike to that of Greece, is that the Japanese government bonds (JGBs) have a very loyal investor base, consisting almost entirely of Japanese domestic investors, most of them institutional. The yield on long term JGBs is extremely low, and recently touched 0.9% before getting back into 1% territory. Why do the investors hold onto anything that is yielding so little? One reason is deflation. As Japanese investors are in JPY, the actual return is yield + rate of deflation. Second, and more important reason, is

Well, this way of looking for new growth is sure to land you in prison. A post on HedgeFundBlogger titled  Hedge Fund Marijuana sent me laughing out loud today. Some quotes: "Tara Bryson and her boyfriend recently received a grant from the state government to set up a goat farm. Instead, the two built a farm to grow marijuana." "Tara Bryson, 36, is the sister of David Bryson, co-founder of Ridgefield, CT-based ew Stream Capital. She heads investor relations for the $1 billion asset-backed lending fund that charges high rates to loan distressed companies money." "Bryson was arrested by the Connecticut State Police in Newtown on July 9th for three felonies: possession of marijuana, cultivation of marijuana, and conspiracy to cultivate marijuana. She plead not guilty, was released on $25,000 bail, and returned to work with investors at New Stream." And I thought this type of reckless hedge fund managers was an endangered species on the brink of ex

I remember I scoffed about CAIA L1 exam. I found it all too easy, and started thinking CAIA should not really stand in one line with CFA. I am starting to change my mind. After some relatively easy sections on Real Estate and Private Equity, here come Hedge Funds and Structured Products, and all of a sudden the exam does not feel so easy any longer. François-Serge Lhabitant, whose book Hedge Funds: Quantitative Insights I had the pleasure (and the pain) reading in the past, really knows what he is writing about... His in-much-detail description of Hedge Fund investment strategies is extremely informative, but memorizing all the formulas involved is no bed of roses. Same goes to the Structured Products. With only a few weeks ahead before the exam, I feel I really need to step on the gas. RELATED POSTS: CAIA Level 2 Exam CAIA Level 1 Exam Comparison of financial certifications CFA and CAIA Designations ■

I highly recommend this article in FT Cautionary tale about exit strategies from 1930s Japan Quote As the policy debate intensifies, investors might spare a thought for Takahashi Korekiyo, Bank of Japan governor from 1911 to 1913. He also served as finance minister and prime minister in the 1920s and 1930s. Outside Japan, few western investors know the name. For while there is discussion about what can be learnt from Japan’s lost decade, little attention has been paid to earlier periods. The experience of 1930s Japan is thought-provoking. Not only does it help explain the decisions that Tokyo leaders took during the lost decade; it offers a cautionary tale about exit strategies. Unqote ■