Shareholder activism works, even in tough markets like Japan. This $1.2 bln money manager breaks down how to do it, and why ‘Nasdaq whale’ Softbank is a great investment

Japanese Man in Street with Stock Market

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Shareholder activism has come a long way since the days of corporate raiding by the likes of Carl Icahn. It has become an ingrained part of the global investing community and helps mould the strategies of some of the biggest companies in the world.

Yet, for the most part, these strategies had been largely confined to the European and US corporate landscapes, although this is starting to shift and shareholder activism has reached Japan, as investors look to unlock value from the inefficiencies of Japanese balance sheets.

Asset Value Investors (AVI), which has around $1.2 billion in assets under management, is one such firm.

“We tend to focus on the kind of companies that are neglected and overlooked by other investors,” Joe Bauernfreund said, CEO and CIO of AVI and manager of the AVI Japan Opportunity Trust (AJOT). “They tend to be out of fashion and that therefore creates an inefficiency and a mispricing opportunity for us to exploit,” he added.

For years, the Japanese market has stood out as a cheap relative to other global markets in the world, lacking some kind of clear catalyst for undervaluations to correct themselves, he explained.

But on a regular visit to Japan several years ago, Bauernfreund and his team noticed something new.

“The language was changing, and the driving force behind that was Abenomics and the ‘third arrow’ explicitly: targeting structural reforms within the economy to try and get the idle capacity that was sitting on many company balance sheets to work, to fire up the animal spirits and get the economy going.” 

Bauernfreund was referring to the trio of economic policies implemented by the government of former prime minister Shinzo Abe, starting in 2012. The ‘three arrows’ were monetary easing by the Bank of Japan, fiscal stimulus in the form of government spending, and structural reforms.

For Bauernfreund, this renewed focus on shareholder returns, or corporate governance improvement, had been absent in Japan for many years, leaving shareholders at the “bottom of the pecking order”.

This created a compelling opportunity, with good quality businesses trading at low valuations and ” a movement in Japan that was designed to try and correct those under evaluations, and try and spur on shareholder returns,” he said. 

However, the Japanese market is unlike anywhere else in the world, Bauernfreund stressed. One cannot simply copy and paste the strategies found in the West into Japanese culture.

In the West, the corporate framework creates a structure where company executives are challenged and shareholders are listened to. But, “you don’t have that in Japan and therefore when one thinks about activism in Japan, one has to be cognizant of the different history and the different framework that exists there.”

“Plus it’s a culture that fears public embarrassment and public shaming. So, if you go out all aggressive, all guns blazing you’re not going to get anywhere- they’re not going to like it,” he added.

Investing in Asia can be profitable, but isn’t easy. Investor Weijan Shan, who heads up Asia’s biggest private-equity firm PAG, told Business Insider recently …read more

Source:: Business Insider


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