The rising profile of activist investors in Japan this year is another reason to anticipate continued improvement in Japanese corporate governance standards, managers say.
Alongside big money managers like Fidelity Investments, which pursue "friendly engagement," Japan now has more activist investors pressuring local companies than anywhere else outside of the U.S., said Hokeun Chung, Fidelity's Tokyo-based director of research for Japan.
Back in 2014, when Japan's stewardship code was adopted, eight activist investors conducted campaigns in the country. Today that number has jumped to 26, noted Shiro Hayashi, director of research and head of Dalton Advisory KK, the Tokyo research office of Santa Monica, Calif.-based Dalton Investments LLC.
Joseph Taylor, a research analyst with New York-based Activist Insight, a provider of market intelligence for the activist investor universe, said his firm's latest tallies show 39 Japanese-listed firms "publicly subjected to activist demands" for the year-to-date through June 19, on pace to surpass the record 2018 figure of 53. The corresponding figures for 2017 and 2016 were 36 and 23, respectively.
With money managers across the board ramping up their efforts now to engage with the managements of companies they invest in regarding environmental, social and governance issues, the distinction between activist investors and more mainstream approaches can become blurred.
Dalton's Mr. Hayashi said his firm has been called an activist as well as a value manager. At Dalton, "we label ourselves as value investors." But with an investment time frame of five to 10 years or more and a focus on actively engaging with the managements of companies, the distinction can be a fine one, he said.
On June 13, Third Point LLC, the $17.7 billion New York-based hedge fund, offered an example of a classic activist approach, announcing a $1.5 billion investment in Sony Corp. while unveiling a detailed plan to unlock value by reorganizing Sony's portfolio of businesses.
Yuya Shimizu, representative director and chief investment officer of Hibiki Path Advisors Pte. Ltd., a Singapore-based activist investor in small-cap Japanese companies with roughly $300 million in assets under management, said the more than doubling of his firm's AUM since the start of 2018 is part of a broader wave of allocations to managers taking a more activist approach in Japan now — a trend which could prove a virtuous circle.
The more money activists garner, the bigger their stakes in local companies and that, in turn, enhances their bargaining power in conversations with management, Mr. Shimizu noted.
While big global players such as Third Point and New York-based Elliott Management Corp. command much of the activist investor spotlight, Japanese players — based in Tokyo or Singapore — are making their influence felt more since Shinzo Abe, who became prime minister in late 2012, made it clear that a more shareholder-friendly corporate culture would be key to revitalizing Japan's economy.
Local players based in Tokyo include Strategic Capital Inc., founded three months before Mr. Abe came to power; Misaki Capital Inc., launched in 2013; Ichigo Asset Management; and Simplex Asset Management Co. Ltd.
Effissimo Capital Management Pte. Ltd., run by Japanese nationals, is based in Singapore.
David J. Holmgren, chief investment officer for Hartford, Conn.-based Hartford HealthCare's $3.3 billion in endowment and pension assets, said when his team concluded Mr. Abe's push to make Japan's corporate culture more shareholder friendly warranted going overweight Japanese equities, the system's consultant, Mercer Investments, was able to identify at least 20 candidates with local teams on the ground he was able to interview.
Activist investing is "very much a grassroots effort" so a local presence is key, said Mr. Holmgren, especially for the small- to midcap segment Hartford HealthCare is focusing on.
If Hartford HealthCare hadn't insisted on firms with a local presence, the universe of managers would have been closer to 45 or 50, he said.
