SPARX targets growth with new Japan value-investing strategy

June 24, 2014
by Super User

SPARX targets growth with new Japan value-investing strategy

Credit to HedgeFund Intelligence

Mon, Jun 23, 2014

SPARX Asset Management, one of Asia's largest independent asset managers with $7 billion under management, is embarking on a significant strategic business initiative with the launch of a new Japan 'light activist' strategy that will focus on property, healthcare, infrastructure and clean energy - all areas where it believes it can identify high-quality undervalued assets.

Shuhei Abe - the veteran Japan investor and founder, CEO and CIO of SPARX - believes that the time is right for the firm to leverage opportunities emerging from the immense change and growth taking place in Japan. "What we can see now in Japan is a broad selection of high-quality assets with compelling valuations," he said. "There are many opportunities both in the traditional equity markets and beyond. But identifying the best opportunities and finding ways to participate in them can be a challenge. Having a world-class equity research platform based in Japan is a fundamental first step." Over the medium term, SPARX is looking to leverage these opportunities to grow AUM to ¥1 trillion ($10 billion) and beyond.

In March, SPARX launched its new Japan Value Impact Fund, which selectively invests in Japanese companies with strong businesses and management teams, and aims to unlock the hidden value of portfolio companies by actively engaging with management to influence their decisions.

"I believe that we can create a significant impact if we are a part owner of a public company. There are many good businesses in Japan but many are poorly managed financially," said Abe. "Traditionally Japanese management was not held accountable for its mistakes and shortcomings. It may have been acceptable in the past for these companies to just ignore us, but the corporate governance culture in Japan is now changing, as illustrated by the 2014 Japan Stewardship Code."

SPARX is not looking to intervene in the day-to-day running of these businesses, rather to help them improve in finance-related areas.

The fund was launched with roughly $20 million and has onshore and offshore versions. It has made four strategic investments to date and the idea is to take this number up to 10 or more, based on the available investment opportunities and the fund's evolving AUM.

Other opportunities emerged after the Great East Japan Earthquake of 2011. "The best investments in extremely difficult environments come by looking at high-quality assets with high-quality yields, which prompted us to launch a Japan property strategy," commented Abe.

That strategy blossomed into a fund that approached $400 million, and SPARX is now turning its attention to nursing homes with the opportunity to launch a healthcare fund. This opportunity is expected to have significant government support as quality healthcare is a rapidly growing need in the country.

Sensing the Japanese government's desire to move capital into renewable projects, SPARX has also created a public-private infrastructure fund sponsored by the Tokyo Metropolitan Government. Assets have reached some $100 million since launch and the fund has invested in 10 renewable plants across Japan.