The California Public Employees’ Retirement System’s (CalPERS) Board of Administration has approved a $200-million investment in a fund that will employ corporate governance activism to turn around underperforming publicly traded companies in Japan.
Tokyo-based SPARX Asset Management Company, Ltd., a listed independent asset management company in Japan on JASDAQ (Japan Securities Dealers Association Exchange), will serve as the investment adviser for the fund in which CalPERS and San Diego-based Relational Investors, L.L.C. will participate as investors, sharing in a 30% equity stake. The deal is subject to final negotiations of terms and conditions.
Relational Investors specializes in corporate governance-related investments, and currently manages $750 million for CalPERS in active corporate governance strategies in the United States.
The fund’s strategy is to make significant investments in a small number of corporations in Japan and collaborate with management to increase the value of the companies for the benefit of shareowners, employees and other stakeholders, according to CalPERS, which currently has some $135 billion in assets.
“The Japanese markets have slowly acknowledged the importance of corporate governance, and their progress is beginning to parallel the changes in the U.S. economy in the last decade,” said William D. Crist, President of CalPERS Board of Administration in a statement. “We can expect that shareowners will play a greater role in the Japanese markets, contrary to the traditional control of large banks and management. We believe the time is right to invest in this kind of partnership in Japan.”
CalPERS investment in SPARX is part of a $1.2 billion investment allocation to external active corporate governance managers in the US, Japan and Continental Europe made by the pension fund in November 2001. CalPERS says it has begun to examine opportunities in Europe and expects to invest the remaining $1 billion of the original allocation during the next two years.
CalPERS has long taken an active role in corporate governance, but under the recent leadership of state Treasurer Phil Angelides, who has made no secret of his social agenda, nor of his desire to see CalPERS adopt a more aggressive investing agenda when it comes to issues like the environment (see Seismic Shifts Ahead for CalPERS ?)
CalPERS notes that active corporate governance strategies typically involve two steps – first a moderate investment, followed by communications with management and other investors.
If the firm fails to respond, managers may increase their stake in the company to provide greater leverage in negotiations. Crist notes, “Active corporate governance strategies allow us to focus our efforts and take a larger ownership stake in a company.”
As befits a fund of its size and reach, CalPERS has recently taken public stands on companies seeking offshore tax havens (see Cal. Treasurer Targets Firms Heading Offshore ), options accounting (see CalPERS Weighs in on Option Expense Debate ), and investment conflicts of interest (see CalPERS Requires Money Managers to Open Up ).