ValueAct Capital Management launched a new hedge fund this month.
The activist hedge fund firm has raised an undisclosed amount of capital for ValueAct Japan Master Fund, which specializes in investments in the firm’s Japan strategy, according to a letter sent to clients and obtained by Institutional Investor. ValueAct has already had exposure to its Japan strategy in its flagship ValueAct Capital Master Fund and its co-investment fund, the ValueAct Strategic Fund.
ValueAct declined comment.
“Since 2017, investments in the Japan market have been an important component of the Flagship Fund’s investment results,” the firm told clients in the letter. It noted that the flagship fund’s exposure to Japan-listed companies has ranged between 20 percent and 30 percent since 2020.
ValueAct said that it has invested over $4.7 billion in companies listed in Japan, including five core positions and “numerous farm team investments” in the Flagship Fund and Strategic Fund co-investments. Since August 2017, these investments have resulted in a net annualized return of 18.9 percent, versus 5.8 percent for the MSCI Japan Index.
ValueAct said that during this time it has “helped foster the corporate transformations” underway at JSR Corp., Nintendo, Olympus Corp., Seven & i Holdings, and Trend Micro.
“We believe we are the only public market firm with a shareholder-director at two Japanese listed companies, former operating advisors as directors at two companies, and NDAs (non-disclosure agreements) at four,” ValueAct said. “Through these engagements we have had substantial input into major decisions on strategies, business portfolios, capital structures, compensation plans, and leadership roles at our core portfolio companies.”
“We believe ValueAct’s Japan strategy has proven [its] ability to produce strong investment outcomes repeatedly and at scale,” the firm added.
ValueAct partner Rob Hale and CEO and CIO Mason Morfit will serve as co-portfolio managers of the Japan Fund. Hale, who has been a member of ValueAct’s investment team for 12 years, will focus solely on ValueAct’s Japan strategy for all funds. ValueAct said Hale “has developed what we believe is a unique experience set in the board rooms of Japanese companies.”
ValueAct was founded by Jeff Ubben in 2000. Ubben retired in 2020, and the firm has since been headed by Morfit, one of the firm’s earliest employees.
The activist firm typically holds an investment for three to five years, but sometimes for as long as 10. Over the years, it has held 55 public company board seats and worked with a number of major corporate transformations at well-known companies, including Adobe, CBRE, Microsoft, Morgan Stanley, Motorola, MSCI, and Rolls-Royce.
“This unique experience set and our ‘VAC toolkit’ distinguish ValueAct from any other public market investor in Japan,” ValueAct emphasized in the letter. The firm said that it is currently finding more investment ideas in Japan than it has capital available to deploy. “We also see a more attractive investment pipeline in the U.S. than we have found in years,” it added.
ValueAct noted that valuations are falling in the firm’s favored sectors and business models. “We strongly believe our investment partnership should commit resources to focus on the Japan market for the long-term, just as we have committed [our] focus to the U.S. market [for] over 22 years,” it added.
ValueAct stressed that the economic ecosystems of the U.S. and Japan are interconnected, especially in industries it favors such as semiconductors, software, and medical products. The firm said that synergies exist between its U.S. strategy and its Japan strategy, and it stressed that its industry insights and relationships in one strategy can benefit the other.
ValueAct said that the investment approach of the Japan Fund — investing in a highly concentrated portfolio of high-quality and undervalued small-, mid-, and large-cap companies — is consistent with the Flagship Fund. “The Japan Fund will seek attractive absolute returns that are superior to the Japanese market return,” it added. The firm also noted that the Flagship Fund “can invest opportunistically” alongside the Japan Fund.
