Strategic Capital Inc., run by a former executive of the Murakami Fund, is seeking to raise more than ¥10 billion from overseas investors within a year for an activist fund that will invest in Japanese companies with excess cash and pressure them to increase shareholder returns.
“There are opportunities to change Japanese companies with backing from public opinion,” Strategic Capital CEO Tsuyoshi Maruki said in a recent interview. The firm has about ¥9 billion in assets under management.
Japan has a long history of activist funds, with Christopher Cooper-Hohn’s Children’s Investment Fund Management UK LLP and Warren Lichtenstein’s Steel Partners making takeover bids and urging domestic companies to increase returns.
But they failed to gain representation on Japanese company boards and their acquisition attempts were thwarted, as targets turned to defenses including so-called poison pills and friendly tie-ups.
Prime Minister Shinzo Abe is seeking better governance to help companies boost earnings. As well as rules for investor responsibility, his administration has backed the creation of a stock index that rewards firms that use funds efficiently. It also set a minimum target of an 8 percent return on equity for listed companies.
The Financial Services Agency implemented a stewardship code in February that enlists asset managers to engage with companies and recommend ways to improve returns and corporate governance.
Strategic Capital obtained approval from the financial regulator in June to directly raise funds from foreign investors. It has invested in seven companies, including Japan Digital Laboratory Co., a computer maker for accounting and financial operations, Daiwa Industries Ltd., a manufacturer of freezers and refrigerators, and Mac House Co., an apparel store operator.
“The fund also invests in undervalued companies that other investors consider can’t change because they don’t want to talk to shareholders,” said Maruki, 55, who started Strategic Capital in December 2012.
Its returns have been in line with the benchmark Topix index since inception, he said, declining to provide further details. The Topix has surged 75 percent since the beginning of December 2012.
After 17 years at Nomura Securities Co., Maruki in 1999 helped start the Murakami Fund, an activist fund led by Yoshiaki Murakami, a former bureaucrat at the Ministry of Economy, Trade and Industry. The two were classmates in junior high and high school.
In 2000, the fund attempted the first hostile takeover by a Japanese investor, targeting Shoei Co., an electronics parts and real estate company.
Murakami was arrested and charged with insider trading in 2006. From that point Maruki oversaw the return of money to investors and the closure of the fund in 2007. It was managing about ¥500 billion at the time, he said.
Maruki said he wants to raise as much as ¥100 billion to invest in large-cap companies to advise on strategy as well as on dividend increases and buybacks.
“There are still lots of Japanese companies that we can invest in,” he said.