Join Toby Rodes, Co-Founder of Kaname Capital and a specialist in small-cap Japanese equities, as he dives into the vibrant landscape of Japanese markets. Discover why now is a prime moment for investing in Japan, the evolution of its corporate governance, and the role of private equity in this changing environment. Toby shares insights from his unique journey, blending his love for Japanese culture with financial expertise, and highlights innovative strategies for uncovering value in a market often seen as undervalued.
Toby Rodes' long-standing fascination with Japanese culture and market dynamics stems from his grandfather's influence and personal academic pursuits.
The podcast highlights a historical shift in Japan's corporate governance, indicating a move towards accountability and improved shareholder relations.
Kaname Capital's investment strategy focuses on identifying undervalued high-quality Japanese firms while fostering managerial engagement for operational enhancements.
Deep dives
Michael Lefel and Ten East
The episode highlights Michael Lefel's leadership at Ten East, which functions as an investment platform that allows sophisticated investors to access private markets with the advantages of a family office. Ten East provides members with co-investment opportunities across various asset classes, including private credit, niche venture, real estate, and private equity. Michael and his team are committed to meticulous investment research and due diligence, committing their own capital to enhance their credibility. With over a decade of successful investments backing their strategy, Ten East aims to create a robust investment experience for its members.
Toby Rhodes' Fascination with Japan
Toby Rhodes discusses his deep-seated interest in Japan, which can be traced back to stories shared by his grandfather, an industrialist who helped rebuild Japanese industries in the late '60s. This early exposure sparked a lifelong obsession with the cultural complexities of Japan, which Rhodes later engaged with academically and professionally. After pursuing scholarships to study the Japanese language and law, he gained insights into Japan's unique market dynamics that differ significantly from Western investment practices. Rhodes’ journey into the heart of Japan's corporate environment has enabled him to analyze and interpret the nuances that influence its capital markets.
Investment Landscape and Corporate Governance
The episode delves into the historical context of Japan's capital markets, highlighting previous attempts at corporate governance reform that fell short due to deep-seated cultural and market dynamics. Toby Rhodes explains how the nature of Japanese capitalism traditionally favored insiders, leading to sluggish corporate growth and low shareholder returns. Recent changes, however, indicate a shift toward improved corporate governance and a recognition of the need for accountability in management teams. The current investment landscape presents newfound opportunities as firms begin acknowledging the importance of fulfilling stakeholders' expectations regarding financial performance.
Kaname Capital's Strategic Approach
Rhodes elaborates on the mission and methodology of Kaname Capital, which he co-founded as a value and quality-oriented manager engaged in the small-cap Japanese equity market. His strategy involves identifying high-quality businesses trading at low multiples while engaging deeply with management teams to enact operational improvements. This dual focus allows Kaname to navigate the distinct cultural landscape of Japan while benefiting from substantial mispricing in the market. With innovative frameworks to analyze management performance, Rhodes aims to uncover compelling investment opportunities that others may overlook.
The Evolving Market for Control
Rhodes discusses the changing dynamics of Japan's market for control, characterized by a push for greater shareholder rights and the participation of foreign investments. He notes that policies aimed at enhancing corporate governance are becoming more prevalent, which bodes well for value creation and operational improvements. The possibility of unsolicited takeover bids now resonates within the Japanese market, challenging the traditional norms of passive governance and helping drive a more competitive market environment. As these shifts manifest, Rhodes highlights the potential for significant transformations in how Japanese companies operate and succeed in the global economy.
Toby Rodes is the Co-Founder and Managing Partner at Kaname Capital, a value- and quality-oriented manager of small-cap Japanese equities.
Our conversation covers the case for Japan and why this time is different. We discuss Toby’s deep-rooted fascination with Japan, his education in Japanese culture, and his transition to investing on the sell side and at GMO. We turn to the past false starts of Japanese activism, recent changes in corporate governance, and Kaname’s process to take advantage of the opportunity. Lastly, we touch on value traps, the carry trade, and the potential for private equity activity in a new era of Japanese corporate stewardship.
