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For decades, shareholder activists in Japan struggled to make headway, often facing deeply entrenched resistance from companies as well as cultural and legal obstacles. Now, as Japan’s stock market hits successive record highs and the number of buyouts continues to soar, they have to reckon with a new and pervasive problem: their recent success.
With some activist funds that focus on Japan having made as much as 20 to 30 per cent annualised returns over the past five years, according to people familiar with the matter, they have now grown to the point where deploying capital is becoming more difficult.
“All the big endowments and pension funds, in the US and elsewhere, have taken positions in the biggest activists in Japan and they have gotten so big that the question now is how that size plays out,” said one senior investor in Tokyo. “As they grow up they have to do bigger things.”
It is a problem that activists of other eras in Japan would have dreamt of having. When Texan oilman, corporate raider and activist investor T Boone Pickens bought 20 per cent of a Japanese company making lights for cars in 1989 and started advocating for board seats and higher returns, he spoke of the effort in glowing terms.
“It’s going to be a new experience for me,” Pickens said in an interview that year. “We’re very hopeful we’re going to learn how all this operates in Japan.” Over the next two years, as he learnt, he would label Japanese business a “cartel” and then sell out of his entire stake in Koito Manufacturing in 1991.
But today a rising stock market and ever higher deployment of capital mean that activists owned 1.1 per cent of the total market capitalisation of Japanese equities at the end of November based on public campaigns, according to estimates from Nomura analysts. The real exposure is probably much higher, with one senior banker in Tokyo suggesting that only 20 per cent of activist campaigns are public. Positions are often built using options and stay below mandatory disclosure limits.
As success and new scale add pressures, advisers and investors in Tokyo suggest 2026 could see activists adopt more aggressive tactics, including the acceleration of efforts to takeover companies.
Pickens and others that came after him were sometimes seen as too aggressive or too naive. They were certainly too early. Their complaints about Japan, however, were consistent: the country’s managers had become too comfortable, many companies were not run for shareholders and there was no real market for corporate control.
Now, in an inversion few back then could have seen coming, the establishment is hailing the presence of successful activists as evidence that the corporate landscape has changed. Japan’s politicians and watchdogs are welcoming them with open arms and supportive regulation, hoping they can lift stock market valuations.
Not only are companies less afraid of greenmailers, some are even welcoming activists and engagement funds as catalysts for change. One fund, Japan Activation Capital, is taking advantage of that and looking for companies that will invite them in.
Activists are accordingly getting more confident. They are taking on more difficult and operational turnarounds, such as Hong Kong-based Oasis Management’s campaign to improve the performance of cosmetics company Kao. And they are taking stakes in ever bigger companies that are core to Japan.
Recently Palliser Capital — founded by an alumnus of Elliott Management — has taken a stake in Japan Post, which runs 24,000 post offices across the country and offers core banking and insurance under a public service mandate. Its campaign follows Elliott Management itself taking a top three position in Kansai Electric Power, a nuclear energy utility.
Rising activism has spurred private equity deals as well. Often an activist will take a position with buyout funds following up, offering to acquire companies or funds for management to take a business private.
Crucially, activists are also increasingly launching offers for entire companies and disrupting management attempts to take their own businesses private — driving up prices to the benefit of minority shareholders as they do so. Activist Effissimo Capital Management recently went toe-to-toe with management of Soft99, a car product supplier, launching a competing tender offer which has left it as the company’s largest shareholder.
Such tactics raise the stakes for activists. As the Tokyo-based senior investor said: “Activists have been able to go for the low-hanging fruit so far . . . it will get riskier from here.”
