Japan activism: Murakami spins persuasive narrative on Jafco

US hedge fund Elliott Management, unhappy with SoftBank’s performance, has dumped most of its position in the Japanese tech investment group. Veteran activist Yoshiaki Murakami is going the opposite way. He is aggressively increasing his stake in Jafco, Japan’s biggest venture capital group.

The tumbling asset values that hit SoftBank also meant a sharp decline in Jafco earnings in the quarter to June. Weak demand for listings have clouded the outlook.

SoftBank has been sharply reducing its holding in Alibaba. Jafco has been slower in slimming a stake in Nomura Research Institute that anchors its own portfolio. The economic consultancy remains affiliated to investment bank Nomura, unlike Jafco.

Murakami wants the 4 per cent shareholding — worth $730mn — liquidated with proceeds used for buybacks.

Jafco shares trade at a steep discount on several measures. On a per share basis, its market value is around 40 per cent lower than its net asset value and nearly half its fair value valuation as of end-June. The stake in NRI must take much of the blame since it is worth half Jafco’s entire market value.

Jafco’s gross return on investment was just 1.7 per cent at the end of June. The return on equity for the year to June was a measly 3 per cent, compared to over 19 per cent at the peak of the equity market rally in the year to March last year, according to S&P data. 

A takeover is a real possibility. The main fund of the investor group led by Murakami, City Index Eleventh, and other parties now have a stake of nearly 15 per cent stake in Jafco. They have hinted at increasing the stake to 51 per cent. Murakami has the advantage that he will not suffer the hostility foreign activists have typically faced in Japan.

Jafco has a more stable record compared to SoftBank, having listed more than 1,000 of its portfolio companies. But the NRI stake is glaringly large, as is Jafco’s discount to net assets. The group should meet Murakami halfway and cut the shareholding sharply.

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