The Japanese Stock Market and Activist Investors: A New Paradigm for Activist Investment in Japan
Shuhei Abe, SPARX Asset Management
The environment for activist-oriented strategic investments continues to evolve rapidly in Japan, where vocal shareholders have gained considerable clout vis-à-vis other Japanese corporate stakeholders over the past few years. By far, the biggest change enabling this has been in the mindset of senior managers at publicly-traded companies. As recently as three or four years ago, many executives in Japan spent more time chasing profit or revenue growth than managing their companies’ balance sheets. Nowadays, thanks in part to the role played by activists, concepts such as return on equity (ROE), return on assets (ROA) and return on investment capital (ROIC) are at the forefront of senior managers’ minds. Moreover, leaders of companies with underperforming stocks now know their firms may become takeover targets. As a result, management is warming to activist shareholders with clear agendas and solid track records for boosting share prices. This ‘Constructive Activist’ model, which typifies strategic investments by SPARX Asset Management Co Ltd, seeks to engage in a dialogue with management on corporate best practices that is neither openly hostile nor over-friendly in nature. Unlike hostile activist funds, which have come under intense scrutiny in Japan, Constructive Activist funds tend to maintain a low profile, entering and exiting investments with little fanfare. And that may well be best suited for maximising returns, at least in Japan’s equity market.