US- CalPERS, the $135bn pension fund for Californian public employees, has approved a $200m investment in a fund that will employ corporate governance activism to turn around underperforming publicly traded companies in Japan.
SPARX, the Tokyo-based asset management company, will serve as the investment advisor. CalPERS is entering the project with the San Diego-based Relational Investors, a specialist in corporate governance-related investments.
CalPERS says the strategy is to make significant investments in a small number of corporations in Japan and collaborate with management to increase the value of companies
“The Japanese markets have slowly acknowledged the importance of corporate governance and their progress is beginning to parallel the changes in the US economy in the last decade,” says William Crist, president of CalPERS board of administration.
“We can expect that shareowners will play a greater role in the Japanese markets, contrary to the individual control of large banks and management. We believe the time is right to invest in this kind of partnership in Japan.”
In practice, SPARX will make moderate investments in companies and then communicate with the company’s management, board of directors and other investors. If the company fails to respond to their demands then managers may make larger investments in the company to increase the leverage they have in negotiations.
Says Crist: “our experience indicates that active corporate governance strategies have proven successful and add value to out investment portfolio. We have historically leveraged our indexed investment strategy and long-term ownership in companies. Active corporate governance strategies allow us to focus our efforts and take a larger ownership stake in a company.”
Relational Investors already manages $750m for CalPERS in active corporate governance strategies in the US and it has been successful in turning around a number of US companies.
The investment in SPARX is part of a $1.2bn allocation to external active corporate governance managers in the US, Japan and continental Europe made by CalPERS last November. The fund has begun to examine opportunities in Europe and expects to invest the remaining $1bn over the next two years.