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After hosting a gathering of the world’s biggest investors in Tokyo last week, BlackRock founder Larry Fink compared the current global interest in Japan to a period when the world was fascinated by the country’s economic “miracle” that lasted into the 1980s. A comparison was made.
Those words could not be more favorable to Japanese Prime Minister Fumio Kishida, who has spent the past few weeks trying to persuade executives at sovereign wealth funds such as Blackstone Group, KKR and Norges Bank to allocate more money to Japan.
With stock prices near 33-year highs, the economy emerging from deflation, global uncertainty in China and corporate governance reforms of the past decade finally coming to fruition, it’s no surprise that fund managers uninterested in Japan are suddenly flocking to Tokyo. .
Some long-term Japanese investors, such as Drew Edwards, who runs GMO’s Usonian Equity Fund, believe the changes are real and are encouraged by Kishida’s plans to reform Japan’s asset management industry and labor market.
“When you meet CEOs under 60, they don’t miss the 1980s, they have clear memories of the slowdown in the 1990s,” Edwards said. “This is the generation that’s coming to power, and they’re more inclined to change.”
Still, some company executives are wary of the sudden interest in Japan and worry that new investors could easily become disillusioned with the pace of change and leave quickly before making meaningful changes to portfolio allocations.
Turning to overseas investors is a smart and well-tested strategy that can yield quick results, but the lesson of the “Abenomics” era is that it is not enough. If Tokyo is serious about unlocking $14 trillion in household savings and investing in Japan as a long-term bet, Japanese investors and businesses need to have confidence in their market.
Looking at the IPO market, domestic signs are not encouraging. Nurturing startups is already a core part of Kishida’s economic plan, but the quality of Japan’s initial public offerings is a serious issue that prevents many Japanese households from investing in the stock market.
Although there is a large amount of corporate venture capital within large Japanese companies, there is a severe shortage of venture capital that can support companies through the later stages of venture capital financing in the United States or Europe.according to CB InsightsLast year, total venture capital investment in Japan was $4.3 billion, while in the United States it was nearly $200 billion.
As a result, many Japanese startups go public much earlier than their global counterparts, leaving retail investors with the risk. Others are choosing to IPO elsewhere, such as the five Japanese startups that listed on Nasdaq this year. And some conglomerates – such as e-commerce group Rakuten – have listed parts of their businesses to try to raise capital.
In April, when ispace, a money-losing startup trying to put a spacecraft on the moon, went public, sole bookrunner SMBC Nikko took the extra step of requiring investors to sign a document confirming they understood the risks of investing in the company. . company.
Morgan Stanley decided not to participate in the IPO after assessing the risks. The exits of Nomura and another U.S. bank followed soon after, which was considered significant as it is known for hiring one of the industry’s foremost experts in finance. All four banks and ispace declined to comment.
In the end, ispace’s stock price soared, and it was priced at a 78% discount to its valuation at the time of its last round of private financing. But if more institutional investors in Japan are willing to provide venture capital to support new companies, it will be a healthier market.
Kishida’s efforts also include a plan to improve the quality of Japanese asset managers and remove barriers to foreign players entering the industry. Critics have long argued that Japan’s asset managers need to improve the performance of their funds and offer more attractive and higher-return products. But what is puzzling is that none of the 14 committee members responsible for the reform of asset management companies is from the industry.
Much of the Prime Minister’s energy in the “Buy Japan” campaign has been spent externally, but Japan needs to believe the narrative.
kana.inagaki@ft.com
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