Hedge funds bet Japan reforms have further to run at Sohn Tokyo

Tokyo, Oct 16: At the inaugural Sohn Conference in Japan, hedge fund managers showcased investment prospects spanning from a financial conglomerate's capital allocation approach to an X-ray scattering firm's AI offerings. Over half of the 14 participating funds favored the corporate reform theme. Daisuke Nakayama, a portfolio manager at Hong Kong-based Polymer Capital, highlighted Orix Corporation, a financial services entity, citing management changes as a significant milestone for the company's global investment firm transformation.

The new leadership emphasizes capital allocation and ROE, with overseas investments from Qatar Investment Authority being utilized for acquisitions. The number of activist campaigns in Japan surged last year, driven by regulatory and exchange pressures to enhance shareholder returns and invest in growth. Fund managers emphasized the importance of capital deployment for business expansion and long-term growth, with examples including Rigaku, an X-ray equipment supplier transitioning to semiconductor metrology.

Indus Capital Partners invested in Rigaku, aiming for a 100% valuation increase by 2029. Corporate reform's momentum remains high, with market participants acknowledging Japan's slow pace of change but noting that once initiated, the shift is irreversible. AI emerged as another crucial investment theme, with firms like Ruane Cunniff and Japan Catalyst targeting software companies for their AI potential in enhancing accuracy and addressing labor shortages.