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Secretive Hedge Fund ends years of silence to tackle the Japan icon

(Bloomberg) – It was the rarest public appearance. At the extraordinary general meeting of Toshiba Corp. in March, a lawyer, who did not give his name, spoke for four minutes about why shareholders’ rights should never be violated. He spoke on behalf of Effissimo Capital Management Pte, a secrecy agent. hedge fund that had dodged the limelight for nearly 15 years. Now it came out in the open, if only to a small extent, to lead a campaign to change the conglomerate and by extension the Japanese company. Fissimo’s victory over Toshiba management in that March 18 shareholder vote was a milestone – both for Japan Inc. . and the hedge fund whose monitored actions have long been the subject of intrigue. It preceded the resignation of Toshiba’s CEO, made the iconic manufacturer a takeover target and triggered a $ 1.9 billion increase in the value of Effissimo’s stake. It could also usher in a new era of corporate accountability in Japan, an era that international investors say is needed to unleash the potential of the world’s third-largest economy and its more than $ 6 trillion stock market. the investor behind it, ”said Emi Onozuka, chief operating officer of Japan Catalyst Inc., a unit of the brokerage Monex Inc. who advises an activist fund. But it has “received recognition for Effissimo’s position and legitimacy.” The hedge fund has come a long way since it was born amid a scandal in 2006 when founders Takashi Kousaka and Yoichiro Imai were young fund managers in their 20s who worked for Yoshiaki. Murakami, the controversial father of activists who invest in Japan. Imai, the son of a senior official in Japan’s powerful Ministry of Commerce, joined Murakami’s firm after working for Japanese investment house Nikko Asset Management Co. route along various tech startups and an American investment fund. Murakami, himself a former elite trade ministry bureaucrat, aggressively pushed for change at Japanese companies before they were ready to listen, puckering many feathers. But in June 2006, Murakami was arrested for insider trading, a development that would force him to close his multi-billion dollar fund. That same month, Kousaka and Imai founded Effissimo in Singapore with low taxes. The company was founded by an American university that remained one of the top five investors as of 2018, according to a memo from that year from Aksia, a consulting firm that provided comments about the hedge fund to the Pennsylvania Public School Employees’ retirement system. In February 2007, Kousaka and Imai Hisaaki had brought on board Sato, who was a former financial director of Murakami’s Mac Asset Management company. The new fund was secretive from the start and did not give interviews. In that vacuum, over the years, media reports almost always emphasized Effissimo’s ties to Murakami, but despite the recent feud with Toshiba, Effissimo’s approach to investment has never been as confrontational as Murakami’s. For the most part, the fund took large positions in a small number of Japanese companies it considered undervalued and held them for the long term, sometimes making suggestions to executives on how to do better. Fissimo’s management style is ‘only long’. value, ”said a 2018 report posted on the website of Japan’s Ministry of Commerce. The hedge fund has a five to 10 year investment horizon, it said. “When there is a need for management improvement, they communicate through documents or in-person meetings,” the report said. “If that doesn’t work, they opt for shareholder proposals or lawsuits as a last resort.” Effissimo’s leaders make reasonable suggestions to companies that are not taking obvious steps to improve, said a director who dealt with the fund and asked to remain anonymous when discussing private information. “The picture of a typical activist would be invest quickly, raise a problem and exit quickly when the stock price rises,” said Masakazu Hosomizu, a partner and portfolio manager at RMB Capital Management, who leads activist. campaigns at Japanese companies. “Effissimo is far from that kind of activist.” The fund has been an investment manager for a wide variety of institutions, including pension funds in Michigan, Vermont and North Carolina, according to public documents. It was also a manager for Canada Pension Plan Investment Board and CERN, the European scientific body that manages the Large Hadron Collider. It also received investments from the endowment from Harvard University, Reuters reports. Harvard told Bloomberg it does not comment on individual investments. Effissimo owned more than $ 10 billion in gross assets, nearly all of which were in the company’s master fund, according to a March regulatory filing with the U.S. Securities and Exchange Commission. Gross assets include leverage and capital commitments. At its peak in March 2006, the Murakami fund managed $ 3.8 billion, according to Aksia. Representatives for Effissimo and Murakami, whose sentences were suspended on appeal, did not respond to requests for comment. Effissimo’s two largest investments are Dai-ichi Life Holdings Inc., one of Japan’s largest insurers, and Toshiba, according to data collected by Bloomberg. The hedge fund is the largest shareholder in both companies, with a stake of at least $ 1.9 billion. Both stocks are trading above the level at which Effissimo first announced its position. From 2006 to 2018, Effissimo delivered a net annualized return of 12.9%, according to the May 2018 investment note published by the Pennsylvania Pension Fund for Teachers and Other School Staff, well above 2% of the MSCI Japan Index. Returns thereafter could not be confirmed. The fund’s large investments are in line with its strategy of seeking corporate improvements, said Justin Tang, head of Asian research at United First Partners in Singapore. “Size matters,” said Tang. Anyone with a small stake “can write Mickey Mouse letters to the board asking for change,” he said. “But when a man talks to 10%, everyone listens.” Still, owning such great interests can have its own problems. Questions remain as to how Effissimo has expanded its gigantic position in the Kawasaki Kisen Kaisha Ltd. will be able to leave. owns 39% of the company and placed an Effissimo director, Ryuhei Uchida, on its board in 2019. The stock is up more than 6% since Effissimo first disclosed a stake in September 2015, according to data collected by Bloomberg. “Could be a problem,” said Nga Pham, a research fellow at Monash Center for Financial Studies who has written about shareholder activism in Japan. There are few such concerns at Toshiba. When Effissimo first released a position in 2017, it was unclear whether Toshiba could prevent it from being dropped. The company had overstated its profits and revealed billions of dollars in losses at its US nuclear power plant Westinghouse, nearly putting it out of business. Toshiba escaped that fate and its supply has more than doubled. This year alone, it is up 58% as many investors expected a bidding war to break out for the company. The Kioxia Holdings Corp. unit is also thinking about one of the biggest quotes ever in Japan, but Toshiba may have even greater significance for Effissimo. The hedge fund surprised many observers when it stepped into the spotlight to submit a shareholder proposal to the company. It called for the appointment of three people to investigate the ballot table and alleged pressure on shareholders regarding Toshiba’s annual general meeting in 2020. Although Toshiba’s board opposed the motion, a majority of shareholders voted in favor of it. Effissimo’s proposal. For decades, shareholders in Japan had almost infallibly sided with management. It was an “eminently reasonable” proposal, said Nicholas Benes, an expert on Japanese corporate governance. “Toshiba just had to agree to an independent investigation,” he said. “But for some reason they refused.” The action could come to define Effissimo. With the Toshiba case, the hedge fund is on the right side of a major problem, at least judging by the backing of investors. Leaving the shadows after nearly 15 years, Kousaka and Imai have finally developed their own identities. Effissimo and Murakami “have the same root,” said Tang. But “the similarities end there.” More stories like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted business news source. © 2021 Bloomberg LP

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