With much of the world focused on the US election, another world leader has recently taken office with relatively little attention, but with promises that could be significant for investors.
Yoshihide Suga replaced Japan's longest-serving Prime Minister Shinzo Abe in September and vowed to continue many of his predecessor's long-term reforms.
For SKAGEN M², which has about 10% of assets in Japanese companies, this will hopefully include improving corporate efficiency and protecting minority shareholders.
Suga has already announced the creation of a new agency to improve the country's digital infrastructure which should benefit the fund's largest overall position, Keihanshin Building, at 5.8% of the portfolio.
Founded in 1948, Keihanshin is a small-cap commercial property owner with a growing portfolio of data centres, which have been one of the few real estate segments to prosper during Covid-19.
Our conviction has been rewarded and the company is M²'s best contributor this year with a share price increase of 50%.
Despite this strong performance we believe there is significant further value to be unlocked through crystalising unrealised asset value gains, increasing the dividend and a buyback among other initiatives.
This view is supported by other shareholders, notably Strategic Capital, a Japanese activist investor who recently increased its stake to 9.4% and became Keihanshin's second largest shareholder.
The activist is demanding that Keihanshin improve corporate governance by appointing an independent director (the board is currently dominated by former employees of Sumitomo Bank, a 4% shareholder).
It is also pushing Keihanshin to crystalise value in its assets by creating a REIT, disposing of its low margin rental properties and selling cross-shareholdings to improve capital efficiency.
These proposals were tabled at the company's AGM and although they received support from other shareholders, including SKAGEN M², it was insufficient for them to be enacted.
In response, Strategic Capital has now launched a tender offer for a further 20% of Keihanshin's shares to put further pressure on management and perhaps attract a rival bidder.
Under the spotlight
Keihanshin was one of a record 23 Japanese companies to receive shareholder proposals submitted by activists in the first half of 2020. This represented a 44% increase on 2019 according to IR Japan, a Tokyo-based consultancy.
Another survey by US law firm White & Case revealed that although none of the activist's 47 demands achieved majority shareholder support, they received greater backing on average than the previous year, suggesting growing investor willingness to support their proposals.
As well as more companies, the voting itself is under scrutiny after scandal recently engulfed Sumitomo Mitsui Trust, Japan's largest provider of shareholder services.
The company admitted last month that votes at nearly 1,000 AGMs were miscounted as a result of an outdated counting method, including their own.
The rise of activism in Japan can be traced back to Abe's election in 2012. The third of his 'three arrows' aimed at kick-starting the country's stagnant economy included a reform of corporate Japan.
He introduced a stewardship code in 2014, followed by one for corporate governance the following year, which encouraged Japanese management to improve balance sheets, shake up boards, reduce cross-shareholdings and ultimately deliver better returns for shareholders.
Believing they had government support, activists sensed an opportunity and turned their focus on Japan. According to Activist Insight, a UK consultancy, the number of companies publicly targeted rose from 14 in 2013 to 65 in 2019, while the number of demands grew from 11 to 54 over the same seven-year period (see chart below).