Operation Twist Leads Fed to Move $400 Billion to Long-Term Holdings

The Federal Reserve Open Market Committee (FOMC) has announced a bond swap, with plans to purchase $400 billion in longer-term securities while selling an equal amount of short-term ones by June 2012.

(September 22, 2011) — The Federal Reserve Open Market Committee (FOMC) has announced it will shift $400 billion to longer-term holdings.

Meanwhile, it will sell an equal amount of short-term securities by June 2012 in an effort to jumpstart the economy. “The committee is prepared to adjust those holdings as appropriate,” the Fed said in a statement.

According to the committee, the program should place downward pressure on longer-term interest rates and help make broader financial conditions more accommodating. Additionally, the Committee said it will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Furthermore, the Committee decided to keep the target range for the federal funds rate at zero to 0.25%, while noting that economic conditions “are likely to warrant exceptionally low levels at least through mid-2013.”

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Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Amid Rising Interest in Alternatives, Former JPMorgan Exec Starts Hedge Fund Advisory in Japan

As Japanese institutional investors -- generally bearish on hedge funds -- increasingly aim to up their hedge fund allocations in the near term, a former prime brokerage executive at JPMorgan Chase & Co has set up a hedge fund advisory firm in Japan.

(September 22, 2011) — With hopes of continued interest in the alternatives market, an ex-JPMorgan Chase & Co prime broker has started a hedge fund advisory firm in Japan.

This month, Stefan Nilsson set up HFC Advisory to offer research and advisory for those aiming to lure Japanese money for alternative funds and funds wanting to invest in Japan, Reuters has reported.

Nilsson’s new advisory firm reflects the expectation that Japanese investors will look for higher returns than those offered by conventional investments, and follows the Government Pension Investment Fund’s (GPIF) recent move to pursue emerging markets to diversify into potentially risker assets.

During the next year, Japan’s GPIF will decide which of the 50 or so asset managers competing to win a portion of the allocation it will hire, the scheme’s president Takahiro Mitani told the Financial Times late last month. The March 11 earthquake and tsunami delayed the scheme’s investment in the asset class.

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“Even though emerging markets have gotten bigger, liquidity is not as high as in developed economy markets, so they are not all markets where you can suddenly get [funds] and soon go in and buy,” Mitani told the news service.

The pension is traditionally a conservative investor, with more than two-thirds of its assets in Japanese government bonds. Mitani has been quoted as saying that while some say the GPIF should invest in high-risk and high-return products, the GPIF will continue taking a safe and effective approach based on a long-term view rather than a short-term one. “In 2008, when we saw the financial crisis after the collapse of Lehman, while we posted a negative result we were relatively better off than overseas pension funds thanks to our conservative, cautious stance,” he told the Wall Street Journal last October. “We posted only single-digit [percentage] loss while others posted double-digit loss.”

Meanwhile, a new survey by Nilson’s HFC Advisory provides evidence of Japan’s rising interest in alternative markets. According to the study, 42% of institutional investors plan to increase their hedge fund allocations in the near term. Additionally, the survey revealed that the average allocation to hedge funds among the Japanese pension funds surveyed stood at 21%.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742