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Secretive Hedge Fund ends long silence to face Japan icon

(Bloomberg) – It was the rarest of public appearances. At the extraordinary general meeting of Toshiba Corp. in March, a lawyer, who did not give his name, explained for four minutes why shareholders’ rights should never be violated. hedge fund that had eluded the limelight for nearly 15 years. Effissimo’s victory over Toshiba management in this March 18 shareholder vote was a watershed moment – both for Japan Inc. and the hedge fund whose cautious actions have long been the subject of intrigue: it preceded the resignation of Toshiba CEO, made the iconic manufacturer a takeover target and caused the stake to increase in value by 1 , $ 9 billion from Effissimo. It could also herald a new era of corporate responsibility in Japan, an era that international investors deem necessary to unlock the potential of the world’s third-largest economy and its stock market of over $ 6 trillion. the investor behind it, ”said Emi Onozuka, COO of Japan Catalyst Inc., a unit of brokerage firm Monex Inc. that advises an activist fund. But he won “the recognition of the position and the legitimacy of Effissimo”. The hedge fund has come a long way since its birth in the midst of a scandal in 2006. At the time, its founders Takashi Kousaka and Yoichiro Imai were young fund managers in their twenties working for Yoshiaki. Murakami, the controversial father of an activist investing in Japan. Imai, the son of a senior official in the powerful Japanese Ministry of Commerce, joined Murakami’s company after working for Japanese investment house Nikko Asset Management Co . through several tech startups and a U.S. investment fund.Murakami, himself a former elite Commerce Ministry bureaucrat, vigorously pushed for change in Japanese companies before they were ready to listen, ruffling many feathers. But in June 2006, Murakami was arrested for insider trading, a development that would force him to shut down his multibillion-dollar fund. That same month, Kousaka and Imai created Effissimo in Singapore with low tax rates. The company was started by an American university that remained one of its top five investors in 2018, according to a memo released that year by Aksia, an advisory firm that provided commentary on the hedge fund to the Pennsylvania Public School Employee Retirement System. In February 2007, Kousaka and Imai recruited Hisaaki Sato, former CFO of Murakami’s company, Mac Asset Management. The new fund was secret from the start, refraining from giving interviews. In this void, media reports over the years have almost always highlighted Effissimo’s ties to Murakami, but despite the recent row with Toshiba, Effissimo’s investment approach has never been more confrontational. than Murakami’s. For the most part, the fund took significant positions in a small number of Japanese companies that it considered undervalued and held them for the long term, sometimes making suggestions to executives on how to best make the decisions. things. , of value, ”a 2018 report said on the Japanese Ministry of Commerce website. The hedge fund has an investment horizon of five to ten years, he said. “When there is a need to improve management, they communicate through documents or face-to-face meetings,” the report said. “When that doesn’t work, they go for shareholder proposals or lawsuits as a last resort.” Executives at Effissimo make reasonable suggestions to companies that don’t take obvious steps to improve, according to an executive who dealt with the fund and asked, “The image of a typical activist would be making an investment.” fast, raise an issue and get out quickly when the stock price goes up, ”said Masakazu Hosomizu, partner and portfolio manager at RMB Capital Management, who leads the campaigns activist at Japanese companies. “Effissimo is far from being that kind of activist.” The fund has been an investment manager for a wide range of institutions, including retirement funds in Michigan, Vermont and North Carolina, according to public documents. He was also director of the Canada Pension Plan Investment Board as well as CERN, the European scientific body that manages the Large Hadron Collider. It also received an endowment investment from Harvard University, Reuters reported. Harvard told Bloomberg it does not comment on individual investments. Effissimo held more than $ 10 billion in gross assets, almost all of which was in the company’s master fund, according to a regulatory filing filed in March with of the United States Securities and Exchange Commission. Gross assets include, among others, debt and capital commitments. At the top of the Murakami fund in March 2006, it managed $ 3.8 billion, according to Aksia. Representatives for Effissimo and Murakami, whose jail terms were suspended on appeal, did not respond to requests for comment. Effissimo’s two biggest investments are Dai-ichi Life Holdings Inc., one of largest Japanese insurers, and Toshiba, according to data compiled by Bloomberg. The hedge fund is the largest shareholder in both companies, with each stake worth at least $ 1.9 billion. According to the May 2018 investment note released by the Pennsylvania Pension Fund for Teachers and Other School Staff, from 2006 to 2018, Effissimo generated annualized net returns of 12.9%, according to the note d May 2018 investment released by the Pennsylvania Retirement Fund for Teachers and Other Staff 2% of the MSCI Japan Index. According to Justin Tang, head of Asian research at United First Partners in Singapore, the fund’s large investments are in line with its strategy of seeking improvements in companies. Anyone who has a small stake “can write letters from Mickey Mouse to the board asking for a change,” he said. “But when a guy who owns 10% talks, everyone listens.” However, owning such large stakes can have its own problems. Questions remain as to how Effissimo can emerge from its giant position in the Kawasaki Kisen Kaisha Ltd. shipping line. The fund owns 39% of the company and put an Effissimo executive, Ryuhei Uchida, on the board in 2019. The stock is up 14% since Effissimo first disclosed a stake in September 2015, according to data compiled by Bloomberg. be a problem, ”said Nga Pham, a researcher at the Monash Center for Financial Studies who wrote on shareholder activism in Japan. could avoid radiation. The company had overstated its profits and revealed multibillion-dollar losses on its US nuclear unit at Westinghouse, which pushed it close to insolvency. Toshiba escaped this fate and its inventory more than doubled. It rose 59% this year alone, as many investors expected a bidding war to break out for the company. Its Kioxia Holdings Corp. is also in the process of considering one of the most important lists ever made in Japan, but Toshiba could be of even greater importance to Effissimo. The hedge fund surprised many observers when it stepped into the spotlight to submit a shareholder proposal to the company. He called for the appointment of three people to investigate vote tabulation and alleged pressure on shareholders at Toshiba’s 2020 annual general meeting. the motion, a majority of shareholders voted in favor of Effissimo’s proposal. For decades, Japanese shareholders had almost always sided with management. It was a “eminently reasonable proposition,” said Nicholas Benes, an expert on corporate governance in Japan. “All Toshiba had to do was agree to an independent investigation,” he said. “But for some reason they refused.” The action can come to define Effissimo. With the Toshiba deal, the hedge fund is on the right side of a major problem, at least judging by investor support. Coming out of the shadows after almost 15 years, Kousaka and Imai may have finally developed their own identity. Effissimo and Murakami “have the same root,” Tang said. But “the similarities end there.” (Updates numbers throughout) More articles like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP


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