Subprime hurts Sumitomo's asset management

By Chikafumi Hodo

TOKYO (Reuters) - The balance of assets managed by Sumitomo Corp (8053.T) has fallen by 38 percent over the past year after investors were forced to sell surging commodities to make up for subprime-related losses, a senior official said on Tuesday.

But Sumitomo, the country's third-largest trading company, expects the outstanding balance in hedge funds to improve since Japan's financial system has been less affected by the subprime problem than the United States and Europe.

"Roughly speaking, at the moment we have 100 billion yen ($941.8 million) assets under our management, which was much bigger before the subprime of last year," Bob Takai, general manager of Sumitomo's financial service division, said at the Reuters Japan Investment Summit.

The balance stood at around 160 billion yen during June and July last year, Takai said.

In its asset management business, Sumitomo manages hedge funds, Commodity Trade Advisory (CTA), a commodities index and currencies. Sumitomo has the largest portfolio in commodities.

Takai said its CTA product has performed well, raising about 21 percent in return in 2007 -- the best performance in the last six to seven years.

But hedge fund performance has been hurt by trouble in the subprime mortgage sector and the global credit crisis, which caused the balance to fall sharply from a peak to the lowest in the last three years. Takai declined disclose the actual size.

"(The fall) is quite understandable due to what has happened in the financial markets," Takai said.

"Probably, the scope of the Japanese hedge fund business is not as bad as the rest of the world. I wouldn't say there is a rosy picture for Japanese hedge funds from now, but the situation is less bad in Japan," Takai said.

In the oil market, crude oil could test $150 per barrel in the next few months, especially when the hurricane season hits the United States, but prices could fall in the fourth quarter.

Crude oil could be put under pressure should Saudi Arabia actually start increasing output in line with its commitment at a meeting of consumers and producers in Jeddah last month.

A possible move by U.S. Congress to impose restrictions on commodities derivatives markets could add uncertainty and trigger sales in the oil market, Takai said.

($1=106.17 yen)

(Reporting by Chikafumi Hodo; editing by Sophie Hardach)