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Dalton co-founder Rosenwald launches activist Japan trust

8 January 2020

Japan's shareholder revolution prompts launch of second activist investment trust, Nippon Active Value, which aims to raise £300m to challenge cash-heavy, smaller companies in the country.

The shareholder revolution in Japan has prompted the launch of a second activist investment trust targeting cash-heavy, smaller companies in the country.

Nippon Active Value is aiming to raise £200m and a minimum of £100m, with a listing on the specialist fund segment of the London Stock Exchange at 100p per share. The issue could be doubled if there is sufficient demand.

The trust will be run by Rising Sun Management, a new Cayman Islands-based group led by James Rosenwald, an Asia fund manager and managing partner of San Francisco-based Dalton Investments. Shore Capital, the broker advising on the launch of which Rosenwald is a director, has a 15% stake in Rising Sun.

This raises potential conflicts of interest that the prospecuts should address when it is published shortly.

The connection to Dalton, a value investor founded in 1999 with $3.2bn under management, does give the new trust a cornerstone investor. Dalton has committed to invest up to £50m of client money in the new listed fund, with a minimum of £25m.

The board of the trust will be chaired by Rosemary Morgan, who also sits on the board of JPMorgan Indian (JII).

Rosenwald will take the helm of a concentrated portfolio of just 20 quoted Japanese companies that have a market capitalisation of up to $1 billion, taking significant stakes of between 5% and 25%.

In an announcement to the stock exchange, the company said the small-cap market was the ‘most attractive and undervalued’ and where activist strategies will deliver increased shareholder returns.

The manager will also be able to invest up to 10% of the portfolio in unquoted stocks at his discretion.

Nippon Active Value's launch comes on the back of sweeping changes to corporate regulation and governance under Japanese prime minister Abe Shinzo. He implemented a corporate governance and stewardship code that ensures shareholders are treated fairly, and aimed to encourage ‘appropriate information disclosure and transparency’, as well as pushing companies to engage in ‘constructive dialogue’ with shareholders.

Historically, in Japan, the interests of shareholders were placed at the bottom of the pile below employees, customers, and wider society.

Unusually, Rising Sun will bear the costs of the launch so that shareholders start with 100p of net asset value per share. It will charge an annual management fee of 0.85% of net assets.

In a statement it said as a consequence of the changes in governance now ‘is the right time to launch a dedicated activist vehicle’ that will target ‘superior returns and increased dividends for shareholders in the companies in which it invests’.

A number of investments have already been identified and Rising Sun said it could invest its targeted £200m within six months. 

Nippon Active Value follows in the footsteps of rival activist Japan investor AVI Japan Opportunity (AJOT) which raised £80m in October 2018 and has grown to £132m under the management of Joe Bauernfreund.

Bauernfreund runs a concentrated portfolio of 29 small and mid-cap Japanese stocks which he believes are undervalued, and where cash and assets make up a proportion of the market cap. He has had some early success with the trust, with the Nittofc fertiliser group being acquired at a 37.6% premium and the trust has consistently traded on a premium to net asset value; currently the premium is 2.1%.

Numis analyst Ewan Lovett-Turner said there were ‘attractions of an approach seeking to unlock value from Japanese equities in light of changes in attitudes to corporate governance’.

However, he said that ‘cultural difference mean the approach to activism is often more nuanced than in western markets’.

This is the second investment company to seek a London flotation this year. The Global Sustainable Farmland Income Trust (FARM) is trying to raise up to $300m (£229m). 

The initial public offer (IPO) for Nippon Active Value closes on 28 January. If successful, its shares will start trading on 5 February.

Investment company news brought to you by Citywire Financial Publishers Limited.

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