Hedge fund start-ups that focus on Japan are expected to hit the highest level since the boom year of 2006 as global banks consider closing proprietary units to comply with new rules, according to Bloomberg.

As many as 27 Japan-focused hedge funds may begin trading this year, with 15 already open, the news service said, citing Rory Kennedy, chief operating officer at Rogers Investment Advisors, which tracks about 170 funds investing in the nation.  The start-ups They include R- SQUARED Master Fund, managed by a former Goldman Sachs proprietary trader, and Orix Commodities Fund, which uses computer programs to invest in commodities futures.

Assets managed by Japan-focused hedge funds, the world’s worst performers, have dropped 65 per cent to $13.6 billion from their peak in 2006, according to Eurekahedge, as more than half employed equity-related strategies hit by the nation’s declining stocks, the news service said. 

Former proprietary-desk traders are setting up many of the new funds as the US implements the Dodd-Frank financial-overhaul act that prohibits banks from risking capital by trading for their own accounts.

In 2009, there were 25 hedge-fund startups in Japan, according to research by Tokyo-based Rogers Investment. There were 20 each in 2008 and 2007, and at least 35 in 2006, when the firm was founded, Kennedy said.

Globally, the hedge fund sector has had a lacklustre year in 2009, as market volatility and concerns about the risk of a double-dip recession have blunted performance.