Life used to be easy for hedge funds in Japan. Regulation was light and there was a no-brainer strategy – go long on small-caps but go short on big-caps – that kept investment decisions simple.
No longer. Takafumi Horie killed that strategy when he was arrested in January 2006 over a securities fraud at Livedoor, the internet company he founded. He was found guilty and given two-and-a-half years in jail. Livedoor’s share price plummeted, taking most fellow small-caps with it. Since Mr Horie’s arrest, the Mothers index, of smaller, start-up companies, is down 80 per cent, while the benchmark Nikkei 225 has fallen just 20 per cent.
