Japan

“And as a result of those spending years, they developed a product that once launched, 18 months ago, has captured nearly 25% of markets in Japan, the first market it launched to. They've converted two million cigarette smokers to users of one of their new prod…”

“I think that most people still don't believe that Japan has moved out of this deflationary period, but I think they have, and this will be really apparent maybe a year from now.”

“China's Demographics are rapidly shifting from very healthy, as in, you know, a lot of working age people, to very Japanese-like, and as that occurs, you're going to get the same problems you had in Japan. Savings rates are going to start really dropping very …”

“You know, there's a lot of, you know, you still have the cross ownership of shares. You know, you still have a very paternalistic society and paternalistic companies. They're not very transparent, so it's very difficult for us to find names for that reason in …”

“If you look at Japan, Korea, and increasingly power as a percentage of our risk in our portfolio, that's probably 40% of our risk.”

“We have CDS positions in Japan. That's a whole nother bet where we think there's these massively levered companies that are trading at ridiculously tight CDS levels that we think are in industries that are in secular decline.”

“And this is one where we really saw the value of activism in Japan done in a very particular way, which was friendly, constructive. And we saw that that created really good alpha.”

“We do have some beta portfolio. We have it in Japan. We have it in Korea and things like that. And so like, I definitely have indirect beta and I have some direct beta bets, but the direct beta bets in our portfolio are very, very intentional.”

“And the reason you don't need anything fancy in Japan is that nothing goes bankrupt. So the Japanese government basically has eliminated bankruptcy for corporations, so you don't need any risk controls.”

“But if you look at Europe, if you look at Japan, if you look at the emerging worlds, the spreads are both wider, and the underlying economic justification for them is a lot more tenuous.”

“If you add up the next 20 countries, Japan, Hong Kong, France, India, Canada, the UK, and so forth, you get to 30 trillion dollars, almost exactly the same as the United States.”

“This is not a CalPERS, CalSTRS, Hermes problem. This is a Japanese pension fund problem that the Japanese have to decide for themselves To start paying their beneficiaries properly.”

“The business culture and, you know, society was not ready for the kind of hostility and just pure greed that it looked like in these transactions.”

“Once we identify the manager, before investing, we'll start working, giving free advice, and I'm trying to be on their side, not the other side of a table and banging a table. That's not our way. We are always trying to be their advisor for free.”

“And that has made a Very substantial sea change in direction in Japan over the past, really, 15 years, not five.”

“This is going to take a long, long time before you get a real market for corporate control, and it's going to take a long time to digest all the companies that could be digested even after that's understood. So let's not play the hostile game and have people a…”

“Shareholder is lowest ranked in Japan. I should say past tense, not current tense. Shareholder was the lowest ranked. Employee, client, So the total stakeholder, shareholder is the bottom. That has been a long time concept, or Japanese community.”

“There are historical examples in Japan, for example, where yields have been low for a long time. And returns have actually been quite attractive because you've had persistently steep yield curves. And as you've rolled down the yield curve, you get the yield pl…”

“A place like Japan, where the private equity as a percentage GDP is probably the lowest of any developed market in the world, as you see some of the daily headlines, that is changing, that is evolving, and so that's a quite attractive market today.”

“Four of the largest economies in the world actually don't have defined enterprise software layers. That's China. It's Japan. It is India and the Asian Peninsula. They don't have defined enterprise software. They have some enterprise software companies, or ente…”

“If you're trying to time the breaking of a bubble, the value is not that important. All of them are overpriced, and whether they're overpriced at 25 times earnings or 35 times earnings or in Japan at 65 times earnings, it's very difficult to work out in any so…”

“We have seen peak globalization. The export driven economic model that was used by very successfully by Japan, then Korea, Taiwan, and now China, that is not going to be as easy to replicate going forward.”

“US and China are the only two countries that had this web two point O revolution. Europe doesn't have social media companies. Japan missed it completely.”

“There's more natural gas that gets flared in the US every year than the amount of energy consumed in Africa and Japan.”

“Back then in the nineties, the big trade that Tiger had and where Julian made tons of money was a macro trade. He did it through individual stocks, but we were short Japan and long the US. And that was a massive macro trade. It was one of the most brilliant ma…”

“So I think Japan has a growing number of world class companies that have world class governance structures, world class capital allocation decisions, but yet do not trade at world class valuations.”

“It is a two-tier market. There are still companies which are not well-governed, which make bad capital allocation decisions, which have very low return on equity. I think it's an incredibly interesting opportunity set for long-short investing, actually. There'…”

“Pre-COVID, I was actually getting better access to the senior management of Japanese companies here than I ever did in Japan.”

“Japanese companies are absolutely critical players in the value chain for semiconductor production. Whether it's the production equipment that's used in lithography or etching or inspection or cleaning or dicing or whatever it may be, or whether it's the mater…”

“I think we've at last worked through that now, and corporate Japan is in a much, much healthier state than it was 30 years ago.”

“Japan is largely these days a B to B investment opportunity. As opposed to a B to C. I mean, of course, there are B to C companies in Japan, and there are very big brands. Japan has some amazing brands like Nintendo and Sony, but a lot of the high value-added …”

“Typically it will involve some description of the moat around a company, the barriers to entry, and that's often, in the case of Japan, R&D driven, or technology driven, or it can be patent driven, some sort of intangible asset that's very hard to recreate.”

“But I think the advent of the corporate governance code and the stewardship code in 2014 and 20 15 Really kickstarted an additional improvement in governance and capital allocation.”

“What's happening in the Japanese economy isn't directly relevant quite often to their Futures or their revenue streams or their margins.”

“If you look at the Japan funds that I manage, the majority of the companies in which we invest are global businesses. They're domiciled in Japan, but they generate the majority of their revenue outside Japan.”

“Forty-five billion dollars in currency intervention. That money had to come from somewhere. It came from U.S. Treasuries.”

“There's a whole range of world-class businesses in Japan that have progressively been re-rated, and I would expect that to get more popular. Not just over the remainder of this year, but beyond, particularly if the yen turned around for any reason.”

“We've owned some of our stocks in Japan for 20 years. I've owned some companies in the US for a decade plus.”

“You go all the way back to inception, 1990. Japan was 45% of the world index, and we had zero.”

“We've had the same country managers in Japan, in China, in India, Korea, and Australia from the very beginning, and we've been there for 20 plus years”

“I saw on the horizon that Japan was finally waking up from a thirty-year slumber, that a governance breeze was blowing, and that true to form, what Japan didn't understand, and that I could arbitrage into this market, was accountability and governance.”

“20% of Japan's GDP was run through the Japanese banking system between 1997 and 2003.”

“Well, I submit to you today that that biggest pool of high quality businesses on low multiples, great entry points, exists in Japan in the middle markets. It's basically a US private equity playbook that exists for weird quirks of how the Japanese financial sy…”

“We don't think that Japan is going to run and hide, but watch this. This is where the thesis is playing out and where the friction point is.”

“I tried to write sell notes, and that's when I learned that the role of research in Japan Is to be a cheerleader, nothing more, nothing less. That people didn't want your opinion, they wanted stocks to go up.”

“In Japan, we had the same 4000 listed companies, but we got there from 2000. That over the last same 20 years, we've added a lot of people during a period of a negative equity risk premium that were told that they could be a listed company with no strings atta…”

“And what we found is where a lot of these outside firms have pushed, domestic institutions are following. So this is why this time is different. We're seeing very constructive voting finally coming from the domestic investing complex.”

“So out of this came a spade of poison pills, and Japan circled the wagons and shut down governance reform to basically prevent the looting and the asset stripping of a Japan that was finding itself undervalued at a very weak point in its recovery from the prev…”

“One of our main really headlines for why this time is different in Japan is there is a market for control.”

“Konami Capital today can make a bid for a company and expect every part of the unsolicited bid chain from investment bank, share transfer agent, Japanese bank and lender to provide financing services to get it done.”

“Japan and its. 1989, 1990 equity bubble was really the first emerging market bubble. That was our argument. You had a mispriced currency and poorly sterilized forex reserves pouring into that economy and no one wanted to hear it.”

“Japan has shown that it compounds at about 12%.”

“We exercise all of our rights as shareholders. We bring shareholder proposals. We bring derivative lawsuits against the board in cases of obvious self-dealing.”

“Japanese capitalism is fundamentally different. It is designed for insiders. It is designed to benchmark domestic products against foreign products, figure out how to keep foreign products out, how to keep foreign capital out, How to keep things uniquely Japan…”

“We're still with 50% of our weight, sub four times EBITDA, about three and a half times EBITDA, nine times earnings, three percent dividend yield.”

“And I would say over the next 10 years, a thousand of the 4000 listed companies are likely to be exited in one way or another.”

“It was really the emergence of the foreign manager with strong research capabilities, largely backed by U.S. University endowments that led the ultimate upgrade and the transmission of the stewardship code into reality.”

“Without a market for control, everything is fine words without fine deeds. Until a management team suffers an unsolicited bid from someone who will run the assets better, you won't get the type of change you're looking for.”

“Being listed and managing it with cash on the balance sheet is our way of handing the company off to the next generation. And if we can do that at .6 price to book, we save 40 cents on the dollar in terms of the inheritance tax.”

“It takes the TSE to literally publish a list of companies that are not publishing a cost of capital and proof that the management team is managing the business with a cost of capital mindset.”

“Then we just ask that we're able to get those stocks on less than five and a half times EBITDA, And lo and behold, there are still 300 of these companies in Japan.”

“Japan isn't going to offer everything up for sale, but the bad capital allocators, the companies that have defaulted on their cost of equity, we're being told that that's game on.”

“We think it's positive because what it does is it finally puts a price tag On the cost of debt, and it means that what was being offered for free, you're now going to have to pay for. And anytime you put a price tag on decision making, people start to act. So …”

“Our alliance with Japan in a military and geopolitical sense is vastly underestimated to a lesser extent with the Philippines, but emphatically with Japan.”

“Japan. I believe that this could be a secular bull market. One of the few in the world.”

“If you're Japan or Korea, you're dependent on the U.S. Security umbrella, you've got U.S. Troops in your territory, you're always going to do whatever deal the U.S. Puts in front of you.”

“IT services, for example, Hitachi was really one of the leading companies in this area. So they started making a lot of these changes and really started to Sell off listed subsidiaries, sell off excess assets, reinvest in growth businesses.”

“I don't exactly know what percent of companies are actually taking positive action, but it's a well less than a majority. I think eventually most companies will do it.”

“The government, I tell people, is the biggest activist investor in Japan.”

“If you would have said to me, hey, Herb, when you started FinePoint, what's the chance that you're going to have Over a majority of your assets in Japan, I would have said you're crazy. And here we are.”

“Most of the companies that we invest in actually are most of their businesses outside of Japan.”

“So the Japan sovereign leverage is high, but net of the central bank is actually manageable. The banking system is well capitalized now. Corporates in Japan And then households, they're all net cash.”

“The second one was in Japan. It was the largest ever proxy contest in Japan, a company called Seven and I Holdings.”

“The number one market Is the U S with about a thousand companies with over a billion market cap and above 40% gross margins. The number two market is Japan with 250. After that, you get to numbers around 50 to a hundred in countries in Europe.”

“Do you know the twenty-year-old cohort in Japan is 50% of what it was in 1948?”

“We have eventually bought big. We're invested in Japan.”