GIC ‘excited’ by opportunities in Japan

Bargain hunting: Workers at a construction site in Tokyo. GIC says valuations in corporate Japan, including real estate, are looking quite positive. — AFP

Tokyo: GIC Pte sees more opportunities to engage with Japanese companies to help them boost returns following a raft of governance reforms in the nation.

The Singaporean sovereign wealth fund is “excited” by prospects in Japan and hunting for more deals as the governance overhaul and the end of deflation make the market more attractive, said Bryan Yeo, deputy group chief investment officer.

“We think the initiatives that policymakers have put into place in recent years have really given them that impetus to start thinking harder,” Yeo said in an interview in Tokyo on Tuesday.

“In the last one to two years we’ve had a lot more constructive dialogue around potential solutions to get better value creation and, as a result, higher stock prices.”

In his first interview since taking on his new role, Yeo said the firm plans to grow the team of 40 staff looking at deals related to Japan and expects the pipeline to grow.

His comments come after a multi-year lull in the firm’s global allocations to Japan. The country as a proportion of GIC’s overall portfolio dropped to just 6% last year from 12% as of March 2019.

Japanese stocks surged to a record this year, a milestone that analysts and investors have at least in part attributed to pressure on companies to boost shareholder returns.

Yeo lauded the Tokyo Stock Exchange’s initiative to urge companies to explain low stock values.

“The fundamentals and valuations in corporate Japan including real estate are looking quite positive,” said Yeo. “The deal pipeline where we sit today is significantly larger than what we saw going back three years or five years ago.”

Within the public-equities space, Yeo said he sees growth potential in entertainment companies that hold intellectual property around gaming and anime.

Yeo said GIC’s talks with companies are different from activist investors in Japan who try to seek change by putting in shareholder proposals or publicly calling for certain goals or management changes.

“We actively engage and find solutions, outcomes and strategies that can help the company grow,” he said. “The potential is there, the key thing is for us and our partners and corporate Japan to really be able to catalyse that and get things going.”

Some of those opportunities could be discussions with the companies to sell off underutilised real estate or non-core business holdings, Yeo added.

GIC is one of the world’s biggest sovereign wealth funds. While the investor doesn’t reveal its assets under management, it’s estimated to control around US$769bil in holdings, according to consulting firm Global SWF.

Despite GIC being in the process of reportedly selling several high-profile properties, its head of Japan Ken Sugimoto said the real estate market was entering “unprecedented territory” as inflation, wages and interest rates all rose.

“We haven’t seen this in the past 35 years,” Sugimoto said in the same interview. “We believe the Japan real estate market is very good, fundamentally good. It’s very deep, liquid and transparent.”

Despite the yen reaching a 34-year low against the US dollar, Yeo said GIC isn’t impacted by foreign-exchange considerations given its long-term investment strategy.

“We don’t invest simply because the yen is cheap or expensive,” he said. “We invest when we see good compounding returns potential over the long term.” — Bloomberg

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