Japanese Firm Launches Blog-Based Hedge Fund

Apr 21 2011 | 11:25am ET

With the recent launch of a hedge fund based on Twitter feeds, it was only a matter of time before a blog-based hedge fund surfaced. And so it has.

A Japanese banker and professor have created the Pluga AI Fund, which uses a web-mining system to track some 20 million blogs written in Japanese. The model, designed by the University of Tokyo's Yutaka Matsuo, seeks out keywords that may affect the Nikkei 225 Index.

The fund, which actually predates the still-to-be launched Derwent Capital Markets Twitter fund, invests in Nikkei futures based on Matsuo's algorithm. It debuted in August with ¥30 million and hopes to raise ¥5 billion, according to Pluga Capital founder Hideki Furusho, a former Goldman Sachs banker. The firm plans to begin marketing the fund to overseas investors in June.

"We're leveraging on the global Web environment through this fund which is probably the first of a kind in the world," Furusho told Bloomberg News. "Over the next 10 years, the Web universe is going to grow, which will allow us to become more accurate in making investment decisions."

The fund will offer daily liquidity, closing its positions at the end of each day. It is targeting annual returns of 30%, and returned 46.8% in simulated trading from November 2006 through July 2010.

Furusho and Matsuo plan to gradually expand the algorithm's ambit to futures and foreign exchange markets outside of Japan and beyond blogs written in Japanese.

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