Mitsui & Co. Will Close U.S. Hedge Fund Unit as It Shifts Focus

By Tomoko Yamazaki and Komaki Ito

Sept. 5 (Bloomberg) — Mitsui & Co., Japan’s second-largest trading company, will close its New York hedge fund business as it shifts to investments including property and utilities.

Mitsui, with businesses ranging from import-export to financial services, decided to shut Mitsui & Co. Alternative Investment Corp. because it failed to meet the company’s targets amid the turmoil of the global credit squeeze, Masaji Matsuoka, who is in charge of formulating funds at the firm’s asset management division, said in an interview in Tokyo yesterday.

The unit was established in 2005 to mainly target institutional investors in Japan who sought to diversify their investments through hedge funds, Matsuoka said.

Tokyo-based Mitsui aims to focus on investing where it has more expertise, Matsuoka said. In June, it announced plans to raise as much as $1.2 billion for a fund to invest in infrastructure assets such as power generators, electricity and gas transmission companies, and railways.

“We’re in the midst of shifting our focus to investments that match the business model of a trading company,” Matsuoka said. “We don’t have any plans in the near future to pursue hedge fund investments.”

The company has raised about 20 billion yen ($188 million) for the Emerging Market Infrastructure Fund, Matsuoka said. Mitsui may also create funds to invest in agricultural businesses, emission credits and metal, he said.

Mitsui invested in London-based Climate Change Capital Group Ltd. in May along with Alliance Trust Plc, Universities Superannuation Scheme and SNS Reaal Groep NV. Climate Change Capital is a manager of funds investing in greenhouse gas credits.

Any future expansion in hedge fund investments will be made by Mitsui’s Tokyo-based Japan Alternative Investment Co., said Matsuoka.

Global hedge funds fell 2.35 percent in July, according to Chicago-based Hedge Fund Research Inc., raising the prospect they will suffer their first annual loss since 2002. Hedge funds have dropped an average of 3.5 percent this year, according to Hedge Fund Research. The July decline marks the fourth time in the past year that hedge funds have lost 2 percent or more in a month.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: September 4, 2008 20:39 EDT

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