Activist Funds Gaining Prominence in the Japanese Market

From 2023 to 2024, significant changes have been occurring in the Japanese stock market. Activist funds, once viewed with caution as "vocal shareholders," are now actively investing in Japan's leading corporations. The number of activist campaigns in the Japanese market is now second only to the United States globally, and further active acquisitions are expected in 2025.

Let's look at some recent notable examples. First, large-scale holdings by activists have increased by 55% compared to 2023. Looking at specific situations, a recent memorable case is Honda's acquisition (business alliance) of Nissan. While officially termed a business alliance, it can effectively be considered an acquisition. Before this acquisition, activist shareholder Effissimo Capital Management accumulated a large stake, leading to a 21% increase in Nissan's stock price.

Why Are Japanese Companies Currently Investment Targets?

The background includes the following factors:
1. Undervalued Stock Prices of Japanese Companies
About half of the companies listed on the TSE Prime Market continue to trade below their book value (PBR < 1). This represents an "undervalued investment opportunity" from investors' perspective.

1. Abundant Cash Holdings
   Japanese companies maintain exceptionally high cash-to-asset ratios compared to global standards. As of 2024, approximately 30% of TSE Prime Market-listed companies are effectively debt-free, leading to increasing calls for effective utilization of this "idle cash."

2. Progress in Corporate Governance Reform
   The 2024 TSE market reforms have facilitated the reduction of cross-shareholdings and increased independent directors, creating an environment where shareholders' voices are more likely to influence management.

Activist Funds' Demands and Corporate Changes

What exactly do activist funds do?
Activist funds' demands typically include:
・Strengthening shareholder returns through share buybacks and dividend increases
・Withdrawing from unprofitable businesses and selling subsidiaries
・Changes in board composition and increasing outside directors
・Portfolio review and ROE improvement

This trend is expected to continue due to:
・Japanese corporate restructuring still being in progress
・Continued government capital market reforms
・Increased interest from foreign investors in the Japanese market

Particularly noteworthy is the expansion of career opportunities accompanying these changes. The increased activity of activist funds in Japan is naturally creating demand for talented professionals. Individuals with financial analysis capabilities and corporate valuation skills who can propose management reforms will be increasingly valued.

In fact, many activist funds are strengthening their Japanese operations and actively recruiting both experienced investment professionals and promising young talent. In this context, let's introduce the Murakami Fund, which can be considered a pioneer among Japanese activist funds.

The Lineage of the Murakami Fund: Key Players and Investment Styles

M&A Consulting, founded by Yoshiaki Murakami, is known as a pioneer of activist investing in Japan. Its investment methods and talent have evolved into today's leading activist funds in Japan. Let's examine their key players and distinctive investment styles in detail.

(1) Effissimo Capital Management
Effissimo is one of the funds that most strongly inherits the Murakami Fund's DNA. Their investment style features:
・Long-term holding as a basic investment stance
・Gradual management improvement demands emphasizing dialogue
・Investment target selection focusing on mid-sized Japanese companies

A notable investment case is their investment in Toshiba. Through large-scale shareholding, they encouraged management reform and ultimately participated in the TOB privatization. They've also achieved success investing in companies like Hitachi Transport and Nichicon, which have strong business foundations but undervalued stock prices.

(2) City Index Eleventh
Their characteristics include:
・Clear demands for shareholder value improvement
・Management involvement through TOBs and share purchases
・Constructive dialogue approach with investment targets

Recent notable investments include Tokyo Broadcasting System (TBS) Holdings. They're pursuing dialogue with management, demanding effective utilization of assets and enhanced shareholder returns.

(3) C&I Holdings
Drawing attention as an investment company where Yoshiaki Murakami serves as advisor.
・Focus on fundamental value improvement of investment targets
・Demands for corporate governance improvements
・Reform promotion through constructive dialogue with management

They gained attention in Nippon Steel's complete subsidiary acquisition of Nippon Steel Trading by advocating for a higher acquisition price.

Common Investment Philosophy and Approach

These funds share the following commonalities:

1. Corporate Value Analysis Methods
   ・Calculation of intrinsic value based on net asset value and earning power
   ・Valuation of hidden assets and non-business assets
   ・Emphasis on cash flow generation capability

2. Approach to Investment Targets
   ・Emphasis on dialogue with management
   ・Presentation of specific improvement proposals
   ・Shareholder proposals and proxy fights when necessary

3. Return Generation Methods
   ・Medium to long-term stock price appreciation
   ・Shareholder returns through dividend increases and share buybacks
   ・Exit strategies through TOB or privatization when appropriate

The investment methodology of activist funds, starting with the Murakami Fund, begins with thorough corporate analysis. They first focus on companies trading below book value (PBR < 1).

Furthermore, they specifically seek companies with abundant cash and cross-shareholdings that aren't being effectively utilized. Companies with low ROE and room for profitability improvement, or those holding undervalued real estate assets, are also attractive investment targets.

In the actual investment process, they first accumulate about 5% of the target company's shares. After filing large-shareholding reports, full-scale activities begin. The initial approach usually starts with management dialogue. While they make specific proposals for corporate value improvement, they may resort to more aggressive measures like shareholder proposals or proxy fights if dialogue doesn't progress as desired. In some cases, they increase their shareholding to over 10% to strengthen their influence over director appointments.

What they demand from management is concrete action:
Shareholder returns of excess cash, sale of cross-shareholdings, withdrawal from unprofitable businesses, and even sale of subsidiaries and real estate. They often demand board reform through increased outside directors. Sometimes they propose bold business restructuring or M&A.

While this investment approach hasn't fundamentally changed since the original Murakami Fund, recent trends show increased emphasis on constructive dialogue. There are more cases of cooperative approaches with management toward the common goal of corporate value improvement. The ability to flexibly adjust strategies according to each company's situation and market environment is also a characteristic of successful modern activist funds.

In this way, activist funds' investment methods are developed based on meticulous analysis and strategic action plans. Their approach, which aims to increase corporate value through management reform, has the potential to bring positive changes to Japan's capital markets.

Career Paths and Recruitment Reality in Activist Funds

Transitioning to an activist fund is an attractive career path for many finance industry aspirants. At Alpha Advisors, we frequently receive consultations from individuals aiming to join activist funds and PE funds.

However, their recruitment requirements and required skills are extremely demanding. Let's examine in detail the type of talent activist funds seek and the career paths to get there, based on actual hiring cases and job postings.

○Required Experience and Background
In activist fund recruitment, practical experience is valued most highly.

Depending on which firm you're targeting, experience in investment banking (IBD) should be considered essential. Experience at these companies provides an excellent opportunity to acquire practical skills in corporate valuation, financial analysis, and due diligence.

In terms of educational background, graduates from top domestic universities like the University of Tokyo and Keio University, or prestigious overseas universities, are frequently hired. There's a particularly active trend in recruiting MBA holders.

MBA graduates from top overseas business schools like Harvard, Stanford, and Wharton are valued for their global perspective and specialized knowledge.

○Essential Skill Set
Financial analysis skills go without saying. Corporate valuation, financial modeling, and accounting knowledge are essential. In particular, deep analytical capabilities beyond general corporate analysis are required, such as evaluating hidden assets and calculating business value.

English proficiency is also crucial. Business-level or higher English skills are necessary for negotiating with foreign investors and handling global investment cases. Beyond TOEIC scores, practical communication abilities are tested.

○How to Pursue Activist Fund Careers from Outside the Finance Industry?
For those without finance industry experience, transitioning to an activist fund might seem like a distant goal. However, it becomes an achievable target with strategic career planning.

The most effective route is career reconstruction starting with obtaining an overseas MBA. The proven traditional career path involves gaining investment banking experience after MBA completion, followed by transitioning to an activist fund. Particularly, joining foreign investment banks like Goldman Sachs or Morgan Stanley is favorable for career status.

A crucial point in recruitment is that activist funds operate within a very narrow community. If you look at websites of funds like the Murakami Fund, you'll notice they typically don't post recruitment information or contact details.

As such, most activist fund recruitment isn't conducted publicly, and introductions through industry connections play a vital role. Therefore, how effectively you build your network during MBA studies or investment banking work becomes key to realizing your career goals.

So, which MBA program should you choose?
How should you proceed with building networks in the investment industry?
These critical decisions require expert insight. At Alpha Advisors, based on our extensive support experience, we offer specific career strategies tailored to your background and goals. We provide comprehensive support from MBA selection to networking strategies during study abroad and job hunting in investment banking.

Transitioning to the elite field of activist funds requires careful planning and a strategic approach. Why not start by consulting with experts to find your optimal career path?

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