Investment activists who were previously unwelcome in Japan are now committing to extended campaigns in the country, buoyed by recent victories in a marketplace that historically gave them an icy welcome.
Elliott Investment Management, based in the United States, achieved a significant breakthrough against Toyota last month through public pressure tactics before reaching an agreement, demonstrating how these firms are adjusting their approaches to capitalize on opportunities created by government and regulatory demands for corporate changes.
This increased activist presence contrasts sharply with conditions twenty years ago, when Warren Lichtenstein’s Steel Partners faced legal obstacles in their attempted acquisition of Bull-Dog Sauce, with a Japanese court labeling the hedge fund an “abusive acquirer.”
“Activism has moderated how it conducts itself,” said Jeremy White, partner at law firm Morrison Foerster in Tokyo. “And the corporates have moderated in large part because of corporate governance reforms, with more independent directors, and an ethos of more accountability to shareholders.”
The increasing activist involvement ensures continued pressure on corporations to transform and highlights Japan’s continued appeal to international capital despite rising geopolitical tensions.
Elliott plans to expand its activist operations in Japan, according to two informed sources. The firm has recently revealed investments in air-conditioning manufacturer Daikin and shipping company Mitsui OSK Lines.
The investment fund accepted a share tender offer from Toyota Industries at a price below what it considered the forklift manufacturer’s true value, but sources indicate Elliott views the negotiated price as beneficial for investors.
According to one source, if Elliott accepted less than maximum value, the firm expects to recover more over the coming decade by establishing its Japanese presence.
Elliott previously invested in SoftBank, which subsequently implemented share buybacks. The firm also pursued Toshiba, where former portfolio manager Nabeel Bhanji obtained a board position.
“At Toshiba, they got someone on the board without putting things into the public domain. Now in Japan they’re a bit louder, putting out press releases and presentations,” said a shareholder adviser.
Elliott brought on Aaron Tai from Cornwall Capital in 2023 to lead Japanese investments, with the San Francisco-based portfolio manager answering to Gordon Singer, son of founder Paul Singer.
Paul Singer traveled to Japan last month for a conference, sources revealed, indicating Elliott’s growing focus on the Japanese market.
Due to Elliott’s substantial resources, other international investors including traditional funds and hedge funds are prepared to support their initiatives, according to a hedge fund manager with Japanese investments.
Activists typically focus on smaller Japanese companies requiring less capital investment, noted Travis Lundy, an analyst who writes for Smartkarma.
“The distinguishing factor for Elliott is size – it has no business going after $300 million companies, because it’s not going to move the needle,” he said.
Japan experienced a record number of activist campaigns last year, according to Jefferies brokerage data.
Government-led corporate reform initiatives have prompted companies to dissolve cross-shareholding arrangements, divest non-essential assets, and execute share repurchases.
The corporate governance framework debuted in 2015, with updates implemented this year, while the Tokyo stock exchange has intensified demands for improved capital utilization.
“There remains an enormous amount of momentum and we’re coming to an inflection point where the upside of that is even bigger,” said Seth Fischer, founder of activist fund Oasis Management.
Structural elements also support activist investing growth in Japan.
Over half of publicly traded Japanese companies maintain some form of family control, with their priorities often conflicting with minority shareholder interests, explained Toby Rodes, co-founder of Kaname Capital.
This arrangement has resulted in underutilized financial resources, stagnant employee compensation, and disappointing shareholder returns, he noted.
“Japan will have decades of activism ahead,” he said.
Some experts cautioned against excessive focus on shareholder profits.
“The danger is the arrival of short-termism and financialisation where everything is about short-term profit,” said Ulrike Schaede, professor of Japanese business at the University of California San Diego.
Others predicted activist involvement would become permanent in Japan.
“Provided that they learn from each other and that they take a less confrontational and more Japan-attuned approach, I imagine that they will continue to be successful,” said White of Morrison Foerster.
