322: Money Makers Investment Trusts Podcast - with Paul ffolkes Davis (07 Mar 2026)

Summary

Money Makers Investment Trusts Podcast – Episode 322 Summary

Host: Jonathan Davis
Guest: Paul ffolkes Davis, Chairman, Nippon Active Value Fund Management Company
Date: March 7, 2026

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Overview

This episode dives deep into the recent Japanese political landscape, the state of the Japanese equity markets, and active value investing with Paul ffolkes Davis of Nippon Active Value Fund (NAVF). Fresh from a trip to Japan, Paul discusses the impact of Japan’s first female Prime Minister, Sane Takaichi, the ongoing evolution in corporate governance, the influence of activists and private equity, as well as NAVF’s strategy and market outlook. The conversation is candid, laced with insightful anecdotes and a focus on medium- and long-term trends.

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Key Discussion Points and Insights

1. Japanese Political Developments & Market Response

[00:02–01:35]

• Election of Sane Takaichi:

  • First female Prime Minister; landslide victory.

  • Her heroes: Shinzo Abe and Margaret Thatcher; expected to continue aggressive corporate governance and reform.

    “People are very excited about Takichi-san’s victory. That’s partly because she seems to know her own mind...there are fewer doubts than usual about the longevity perhaps of...this government” — Paul ffolkes Davis [01:44]

• Market Impact:

  • Strong performance in Japanese equities.

  • NAVF market cap now approx. £478m, up from its pre-pandemic IPO.

  • Concerns over continued currency weakness (Yen) but optimism for equity and fixed income markets.

    “She’s not good for yen, but she’s very good for markets generally, I think, both traditionally fixed income and equity...” — Paul ffolkes Davis [02:46]

2. Currency Issues & Hedging Policy

[04:13–05:50]

• Performance Discrepancy:
  • NAVF up ~230% in yen terms since launch; only 140% in sterling due to weak yen.
• No Currency Hedging:

  • Policy is “we never hedge,” optimistic about future yen recovery.

  • Belief that it would be unwise to start hedging now when upside risk for yen prevails.

    “We’re not foreign exchange traders and it was never considered. So you’re quite right. We will not start hedging now.” — Paul ffolkes Davis [05:43]

3. US-Japan Currency Dynamics

[05:50–07:12]

• Discussion of American tolerance for a weak yen, despite US complaints on trade imbalances.

• US needs Japan as a strategic partner; policy latitude for Japan’s weak currency.

  “So the Americans do need a major ally in Southeast Asia and Japan is obviously it. So they're probably getting away with running a weaker currency…” — Paul ffolkes Davis [06:54]

4. Structural Reforms, Corporate Governance & Activism

[07:12–11:29]

• Corporate Governance as Catalyst for Reform:

  • Japanese business culture slowly evolving under regulatory and activist pressures.

  • Delisting trend: almost 4,000 listed companies today, expected to fall to 2,000 in a decade.

    “There are still virtually 4,000 companies listed in Japan...they expect that number to be nearer 2000 within a decade.” — Paul ffolkes Davis [08:36]

• Role of Activist Investors:

  • Still “hundreds” of opportunities for activists; scope for improving capital allocation, dividends, buybacks.
  • Activists fill gaps government pressure leaves—helping conservative, ‘salaryman’-run firms to unlock value.

5. Case Study: Fuji Media Holdings

[11:29–16:27]

• Activism Success Story:

  • Long process of private engagement, catalyzed by a well-timed public letter highlighting governance failures.

  • Triggered board resignation and a buy-in offer allowing NAVF and other activists to profitably exit.

    “I was able to write a letter which went viral in Japan where we talked about our moral outrage and that caught the public imagination.” — Paul ffolkes Davis [15:28]

• Lessons that public pressure and scandals can accelerate change.

6. Portfolio Developments & Cash Deployment

[17:42–18:47]

• Recent exits (e.g., Fuji Media, Hodi Medical); large inflows of cash awaiting redeployment.
• Portfolio has expanded from ~22 to 29 names out of a need to deploy proceeds.

7. Foreign M&A Barriers: The 7 & I Saga

[18:47–20:38]

• Failed Foreign Takeover:

  • Canadian retailer Couche-Tard's failed bid for 7 & I due to government intervention; company deemed of national importance.

  • Ongoing resistance to foreign M&A in key sectors, though internal reforms persist.

    “...it became a Category 3 company, almost like an arms company. And the Couche-Tard bid failed. So what was an opportunity to demonstrate that Japan is becoming more open...the old school prevailed.” — Paul ffolkes Davis [19:37]

8. Private Equity’s Growing Role

[21:06–23:45]

• PE as ‘White Knights’:

  • Japanese management trust PE more than activists; PE viewed as a friendly takeover solution, often after activist engagement.

  • NAVF retains small stakes in privatised companies alongside PE backers for a “second bite” at potential gains.

    “Only in Japan would Carlyle or Bain or KKR be regarded as less scary than me, because I'm not very scary.” — Paul ffolkes Davis [21:18]

9. Gearing and Strategic Investments

[24:03–26:56]

• NAVF generally does not use gearing but has the facility for specific opportunities.
• Strategic use of portfolio companies for acquisitions, especially where Japanese banks are more willing to lend.

10. Consolidation in the Investment Trust Sector

[26:56–28:54]

• Ongoing opportunities for mergers with underperforming rivals, especially Baillie Gifford Shin Nippon, but industry consolidation proceeds slowly.

11. Risks and Forward Outlook

[28:54–31:42]

• Macro Risks:

  • Geopolitics—unstable US leadership, market reversals.
  • Recent military events (US-Iran conflict impact acknowledged).

• Fund-Specific Risks:

  • Portfolio deliberately constructed with ‘margin of safety’—companies with strong balance sheets, non-core assets.

  • No major disasters in portfolio to date.

    “There’s one major issue that could go wrong in so many ways...His Name is with T...N’s in P.” — Paul ffolkes Davis, alluding to Donald Trump [29:18] “In six years of doing this, we haven’t had a single stinker. There may be one or two stocks which we lost a bit of money on...but we haven’t lost a great deal of money in a single counter...” — Paul ffolkes Davis [30:23]

• Overall: Still “very bullish,” expecting continued unwind of successful investments and eager to redeploy capital.

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Notable Quotes & Memorable Moments

• “We’re way out in front of all the indices, as we always have been. What is different...is that the large companies have been rallying very strongly. So...smaller companies, which is the waters in which we fish...we’re still outperforming and doing well.” — Paul ffolkes Davis [04:20]
• “It is the government, either through the pension fund or through the bank of Japan, that is the largest shareholder in Japan, that still owns 12 to 30% of the whole market.” — Paul ffolkes Davis [12:36]
• “Luckily for us...a scandal to do with the sexual peccadillos of one of their presenters created a kind of me too opportunity in Japan which we were able to leverage...” — Paul ffolkes Davis [14:10]
• “Japanese companies...view [private equity] as white knights and throw themselves on their mercy...” — Paul ffolkes Davis [22:16]

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Important Timestamps

• [01:35] – Paul on the mood in Japan after new PM’s victory
• [04:13] – On NAVF’s performance vs benchmarks, small cap focus
• [05:17] – Discussion on currency risk and hedging policy
• [08:25] – Potential consolidation among Japan’s 4,000 listed companies
• [11:29] – Relevance of activism amid government-led reforms
• [13:59] – Fuji Media: leveraging scandal for governance change
• [17:42] – Recent exits and portfolio cash redeployment
• [19:06] – 7 & I case and resistance to foreign M&A
• [21:18] – Private equity’s new prominence
• [24:17] – Gearing and strategic investments
• [27:15] – Prospects for further consolidation in Japanese investment trusts
• [29:13] – Risks that could derail strategy
• [31:42] – Closing reflections and summary

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Conclusion

Paul ffolkes Davis paints a compelling and optimistic picture for Japanese equity activism, despite global uncertainties. The fund’s approach remains unchanged—eschewing currency hedging and routine gearing in favor of active engagement, balance sheet safety, and targeted consolidation. Japan’s evolving corporate culture, prompted by government and activist pressure, presents ongoing opportunities. Risks remain, but NAVF is successfully adapting to change and reaping the benefits of its disciplined, activist strategy.

Transcript

[A]

Hello and welcome to the latest Moneymakers Investment Trust podcast with me, Jonathan Davis. A reminder that for regulatory reasons, nothing you hear today, however stimulating and insightful, should be regarded as constituting individual investment advice or a specific stock or recommendation. Them's the rules we have to work with. In this episode of the Moneymakers Investment Trust podcast, I have the chance to catch up once again with Paul Foulkes Davies, who is the chairman of the management company that runs navf, Nippon Active Value, the Japanese activist fund. I think that's a shorthand way of describing it, which has been listed on the market since early in 2020. It had the distinction of being the last trust to IPO before the COVID pandemic hit. And since then, I think it's fair to say it's gone from strength to strength. It raised something over 100 million at the outset, bit less than it hoped for, but has since grown even larger. And now, through a combination of organic growth and mergers with other trusts, it now has a market cap of around 478 billion, I think, as of this morning. So these have been good times for the Japanese stock market, and particularly, so one could say in the last few weeks, there's been a strong market reaction to the election victory of Sane Takaichi, the first female Prime Minister of Japan. Now, you've just come back from Japan, Paul, and I think it would be therefore very opportune moment to ask you to give your comments on the election and what it might mean for Japan and in due course for investors.

[B]

Well, thank you very much, Jonathan, for having me again, and it's nice to see you. I think the last time we did this was April 2024. Yeah. So Japan seemed full of beans to me. People are very excited about Takichi san's victory. That's partly because she seems to know her own mind and therefore people are confident that there will be a clear track. And it's also that she won so convincingly. And so there are fewer doubts than usual about the longevity perhaps of what you can expect from this government. As we know, she has two heroes, Shinzo Abe and Margaret Thatcher, both expansionist. And I think she has a chance probably to carry on Abe's work in corporate governance reform and bringing the markets in general in Japan for forward, maybe in a way that even he couldn't do in his two terms Prime Minister. So it is potentially quite exciting. Nobody seems to be too worried about some of the things that are being said about clarifying the corporate governance code and whether this will have the effect of dampening opportunities for activists. I think the only real lack mark on the horizon is she's clearly, and her policies are clearly not good for the currency. And as we know, and we've discussed this in both our previous encounters, although we do very well in sterling, we do even much better in yen, which we don't hedge, and therefore we're going to have to wait a little bit longer for any sort of recovery, I think, in the currency. And in fact, over the last couple of weeks, it's continued to weaken and reach new lows. So she's not good for yen, but she's very good for markets generally, I think, both traditionally fixed income and equity, and she's certainly so far been good for Nippon Active Value Fund and activists generally. And we're having a good time. I would say, though, that we are probably only just about keeping up with the markets generally, because Japan has probably been the best of all developed stock markets in the world over the last six months to a year, and that looks, I think, set to continue. So we've talked in the past about whether we're running out of road, and I would say no, we're not. And it's all to play for.

[A]

You've highlighted that difference in performance more recently between what you're doing and what the mainstream Japanese funds are doing. And there's been a kind of reversal of the performance advantage you once did have over them. Can we just dig a little bit into why that might be?

[B]

Can I challenge that statement? Firstly? Sure. I don't think there has been a reversal performance. If you look at what we do, which is smaller Japanese companies, we're way out in front of all the indices, as we always have been. What is different in recent times is that the large companies have been rallying very strongly. So the topics in the Nikkei 225, those aren't the stocks that we typically invest in, and that's the end of the market that's been performing, I'd say, of smaller companies, which is the waters in which we fish. We're still outperforming and doing well.

[A]

Yes, well, that was the point I wanted to clarify, just to make it clear that there's two things to work here. There's a smaller company's focus, but there's also the sort of general market movements. And you highlighted the currency impact. And I think in a recent calculation I saw in yen terms since launch, you're up around 230% nearly, which is pretty impressive performance. But in Sterling, you're only, I say only up 140%. That's still a decent number, of course, but there's no question that you're going to change on their hedging policy. Can you just perhaps explain why it is that you don't employ hedging in your strategy?

[B]

Well, I think it's too late now. So now there's all to play for, for the yen to recover. And I think probably the government and Mr. Ueda, who runs the bank of Japan, will protect the yen from falling much further from here. So my guess is the risk is on the upside for the yen, and therefore we'd be stupid to start hedging it now because we want to regain some of what we've lost. We didn't hedge because we never hedge. It's not something that we do. We're not foreign exchange traders and it was never considered. So you're quite right. We will not start hedging now.

[A]

I think one of the curiosities of the last couple of years under the new American president, or say the returning president, Mr. Trump, is the fact that he goes on with his whole tariff policies, always complaining about being ripped off by the trading partners, and yet the US Seems quite happy to live with this very weak yen, which I think according to one calculation I saw pretty purchasing power parity should be in the sort of 90s rather than 150 or whatever. Is that a factor that could change?

[B]

Well, funnily enough, we touched on this exact point in April 24, and I said at the time, it's hard to imagine the Americans allowing a major economy to run its currency as weak as the yen is. And I still find that pretty extraordinary, even despite the fact that obviously the dollar has weakened a great deal since Trump came back, and that is all part of his design. But the yen has weakened even more. So I'll just go back to what I said at the time, I think, which is the Americans do need a major ally in Southeast Asia and Japan is obviously it. So they're probably getting away with running a weaker currency than you might expect them to be allowed to. And obviously it's very good news for Toyota and Sony and all the large companies who are very much export driven. So I don't have a crystal ball on the end. I thought we would be much higher now than we are, and I'm still waiting for that to happen.

[A]

Right. But assuming it does happen at some point, then of course that will provide a commensurate benefit to sterling shareholders of the fund. Well, we haven't seen that Yet I was very impressed to read in your last interim statement, I think, which came out about the period to the first half of last year, that you said you weren't in the business of commentating on short term developments in the markets. No. Elevator music was the phrase you used, which I thought was quite entertaining. And that I hope is the focus on which we normally apply. But I think just to go back to the corporate governance changes, obviously they've been very important to you and the success that you've had combined with your own efforts, of course, in taking on some of the companies which are still so conservative in their business and accounting practices. That trend is a long term trend though. And presumably if we look at the number of companies that are now starting to delist, if we look at the level of dividend payments that you're now seeing coming through, and you look at the number of takeovers and so on, the trend towards improved corporate recovery has been working. And from a long term, medium term perspective, what you're saying is that you expect that to continue. There's still plenty of opportunities out there. We asked you that last time we spoke and you said there were still hundreds of opportunities. Is it still hundreds or is it more down into scores now perhaps, rather than hundreds?

[B]

No, I think it's still hundreds. And there is an interesting and simple statistic which surprised me the first time I heard it about May last year when we visited the FSA in Japan. But METI, the Trades Ministry and the FSA have again repeated it to me in the last two weeks. And that is that there are still virtually 4,000 companies listed in Japan, which would make that the most of any developed stock exchange, and that they expect that number to be nearer 2000 within a decade. So something is going to happen to half the listed companies in Japan. And what that is is that they're either going to get better at running their business and allocating capital and start paying out bigger dividends doing buybacks and their share price responding accordingly. And we have plenty of examples in the portfolio companies that have listened to our advice on these things and done just that. And the share price has performed. In fact, our top performing share is one such Ibaraj Atugya, or they're going to get consolidated. Now this can happen in a number of ways. We can persuade the management that they should do their own management buyout. If we fail to do that, we can encourage them to think that they need the help of private equity. And there will be a tender offer managed by any one of the Very successful private equity houses in Japan. And that's something we might want to talk about because it's one of the big changes since we began this fund is how prevalent and important private equity is becoming now in Japan or they will be consolidated into the supply chain of the people who are probably one of only several customers. I'm thinking of companies that make auto mirrors or timing belts. Both two companies that we've had in the portfolio in the past, both actually still independent, both ripe to be consolidated by Toyota at some point. Of course, Toyota's got its own focus on at the moment. This is the last day of its attempt to buy in its mother, Tico, or Tico as its name, Toyota Industries. And we'll see whether they succeed because another one of our friendly competitors, Elliot, is doing their best to make sure that they don't succeed in doing that. So I think Toyota needs to consolidate its own family of companies first. But over time you have to think that these large Japanese companies will start to consolidate their suppliers and that will be one of the other pressures to remove quite so many companies that don't need to be listed, of which there are still about 2000.

[A]

Looking at activism, we know that the government and the stock exchange have been pressing companies in Japan to make changes. How important therefore is the role of activists such as yourself? In other words, if these companies are being pushed already by the regulators and the stock exchange to make changes, do they need an extra push from the likes of you and what is it that you add to the process that would not happen naturally?

[B]

Well, I think it's a very valid question. I think when we began this, most Japanese companies of the sort in which we invest, and I'll remind your listeners that we are really focusing on what we would call salaryman run companies, companies that are not run by the founding families or by the entrepreneurs who came up with the idea, but by second, third, fourth generation managements that are mainly concerned with making sure that they can sleep at night by keeping too much cash, too many cross shareholdings, too much property on the balance sheet, non operational assets that make their capital allocation and their cost of capital and return on capital metrics competitive. So these are the sorts of companies that we're going for. When we first started, although the corporate governance reform program been underway since 2014, a lot of these companies had no sense of urgency or what they ought to be doing. You're right that as the program has continued and we talked a little bit about, about Mr. Yamaji, who is the head of the stock exchange last time we spoke, who I liken to as the greatest of the activist investors out there, it's not us, it's not the Murakami's, it's not Elliot. It is in fact the government that is trying to make these companies perform because it is the government, either through the pension fund or through the bank of Japan that is the largest shareholder in Japan, that still owns 12 to 30% of the whole market. But do we still add value? Yeah, we do. Because there are a lot of companies out there that are incredibly stubborn or incredibly badly wrong that still need cuddling and persuading and sometimes a kick up the backside. And one obvious one, for example that caught a lot of imagination in the last year or so we haven't talked about before is Fuji Media holdings, one of the biggest broadcasters in Japan who regarded itself for decades as protected by the Broadcasting act, which stops foreigners only more than 20% and makes the company very difficult to affect one way or another. Luckily for us, and unluckily for them and for the people involved, a scandal to do with the sexual peccadillos of one of their presenters created a kind of me too opportunity in Japan which we were able to leverage into getting the entire board and the what was known as the old guard or the ancient regime to resign. So we've had a lot of success with Fuji Media, which was a company that I was getting worried about because like a predecessor we've spoken about before intage, we were holding it for a long time and wondering how we were ever going to get out given the amount of stock that we held. And in the end the new board decided only last month to make a buy in offer for 30% of the equity and that enabled us and the Murakami family and the SBI three activists to exit very profitably. Not sure it was such a good idea for the company though because its long term shareholders didn't take advantage of this offer and the share price has weakened substantially since, which actually means that we and other activists may well go back in and see if this can be done a second time. So maybe it's not so clever to try and buy out your activist investors. But that was an example of the company that wasn't doing anything that it was told that it should be doing and has now started to think about that. Although the one thing it should do, which is to sell its real estate business because it is really a broadcast or not a real estate company, it's still talking about doing but not actually

[A]

acting well, there might of course be a read across from some of those comments you've just made to other investment trusts, but we won't go there. But in this particular case, I think you were quite successful at going to the media, which is not your normal, I think, approach, is it? I mean, your first approach is to go to the board.

[B]

And absolutely, we have been engaging with the board for some while, several years in fact. But in the end, because of this scandal and our realization that Mr. Ueda, who wasn't even normally the chairman but has run the company for over 40 years and was now in his late 80s, had condoned the sort of behavior, I was able to write a letter which went viral in Japan where we talked about our moral outrage and that caught the public imagination. So it allowed us to broaden the discussion. And at that point the company did act and did appoint a new board. We put up a slate of directors, none of whom were elected, some of whom are very distinguished people. But that is par for the course. We have always struggled to get people onto boards, but the new board has acted and as I said, did effect a buy in to try and get rid of us and other troublesome shareholders, which I think they've succeeded in doing for the time being. But my guess is the story is not over yet and we did make some money, so that was good for us, not so good for the company.

[A]

You are listening to our Money Makers podcast. We are an independent research and publishing venture and grateful to JP Morgan Asset Management for their generous no strings financial support which enables us to keep the podcast free and our editorial principles intact. Each podcast episode goes live shortly after being recorded with a weekly catch up email notification every Saturday afternoon. Why not Also try our premium weekly subscription Moneymakers newsletter which provides a comprehensive summary of all the latest news, results and performance data from the investment trust sector with links to the relevant stock exchange announcements. If you want to go down that rabbit hole. And many other regular features including more than 170 in depth and independent trust profiles, regular market commentary and videos, plus the editor's list of favorite funds. If you never want to miss a thing that might affect your portfolio, do please sign up today at Money Dash Makers Co. And if you follow this podcast on YouTube, please do use the subscribe and like buttons. Thank you. On your recent visit to Japan, which you've just returned from, you had a lot of meetings with companies, I imagine. Are there any particular situations which are coming to a head that you can talk about?

[B]

Yes, in fact, we went through a period in the autumn of last year, when we seem to be rather moribund and not making a lot of progress since then. And I said at the time that we were hoping that several of our longer term holdings, including Foodie Media, Hodi Medical, a company that my colleague Jamie Rosenwald is on the board of, Iken Chemical Bunker shutter. These are companies that we've owned a long time and we were hoping there would be a resolution. Aska Pharmaceuticals, another. They're all starting to get resolved. In fact, our problem at the moment is that we have so much cash that we realize through the Fuji Media exit and we're about to receive from Hoagie Medical, going private, as it is under the auspices of Carlyle that we're desperately trying to get new names into the portfolio. So unusually, we've got 29 names in the portfolio. It's tended to be nearer 22 to 23 for a long time. And that is just because we need to get money into some new names or we are going to be running too much cash.

[A]

You mentioned in one of your announcements that I read, you talked about the 7 and I bid, which I think is the parent of 7 11, the retail convenience stores. Can you describe for those of us who haven't been following Japanese corporate developers quite that closely why that was significant and where we are as far as that particular saga is concerned?

[B]

Well, I will preface all my remarks by saying we don't own any, so we don't have an axed line. But it was an interesting1 because 711 is a very important company in Japan, as is another company called Dawson and the third one called Family Mart. Those three companies run convenience stores throughout the length and breadth of the land. And that is actually how most Japanese housewives still shop, not in large supermarkets but in convenience stores at the end of the road. The largest of these is 7 and I and it is not a terribly well run business. We have owned it in the past and a large Canadian retailer, Couch Tard, made a bid for it and we thought this is going to be very interesting because this is a company that everybody feels an affinity to in Japan and whatever. And lo and behold, the Japanese actually reclassified Seminar and I as a company of national interest. It became a Category 3 company, almost like an arms company. And the Couchard bid failed. So what was an opportunity to demonstrate that Japan is becoming more open and allowing foreign companies to make acquisitions. In this regard, the old school prevailed. However, they are making quite a lot of reforms internally and managing the business more efficiently. But we had all hoped And I think at the time I wrote about it, that we expected Kustab to win that and they didn't.

[A]

Right. So there is still resistance to foreign corporate takeovers in some sectors at least.

[B]

There sure is, right across the piece. But it is getting better all the time and companies are becoming more and more aware of what Mr. Himaji wants them to do in terms of getting their share price to at least reflect one's book and generally improve the way they allocate capital. But there's still a long way to go and we think that there's no reason why we should change what we do or how we do it. It seems to be working as well, if not better than ever.

[A]

You mentioned private equity. Why would private equity have more success in getting involved in Japanese corporate situations than foreign corporates, for example? Do they have any advantages or disadvantages in that context?

[B]

Well, it's a fascinating issue. Only in Japan would Carlyle or Bain or KKR be regarded as less scary than me, because I'm not very scary. And even Jamie can be fierce. And, you know, he's quite well known following the Fuji media discussions. No, he's a pussycat, as he likes to describe himself. Compared to the PE houses, the PE houses have a kind of unique position in Japan. They've been there for a long time and they've been wanting to do deals for a long time. And it's really the activists that have given them a way in because they do not want to appear as aggressors, they never have. And they still want to appear extraordinarily, in my view, as white knights. And even more extraordinarily, Japanese companies that are in distress view them as white knights and throw themselves on their mercy, which is what Carlisle has just done with Hoagie Medical, what Trancom and TMK Toca did with Bain and Company. So these are companies that we have pushed to do MBOs, and eventually, when they've done it, they have done it via the good offices of a PE firm, who are then pretty rigorous in squeezing more efficiencies out of the companies, as you would expect. So it's not always worked out to the great advantage of incumbent managements, but it's normally good for the companies. One of the reasons why we are very happy to see PE be more successful in Japan is we think they know what they're doing. And we have now created a precedent three times where companies in which we were large shareholders and which had been taken private, we managed to persuade both management and the Reddit PE firm to allow us to stay invested in the geared or whatever the private vehicle is, which basically means that we take most of our money out, we are able to keep an interest of 10 to 15% in the company, and we should therefore get a second bite of the cherry or the back end when that company is either relisted or consolidated or sold at the end of the day. So we're often asked, are we becoming private equity investors? And the answer to that is, not, as such, no. But we do like to stay invested in companies that we liked enough to buy when they were public if they're taken private. And it constitutes a very small percentage, under 2% of the whole portfolio. But we will try and continue to do this as companies in our portfolio are taken private.

[A]

So it might become a bigger percentage of the total portfolio. But 2% is not going to move the dial.

[B]

It's less than that at the moment. It's just gone over one and a bit, I think. One and a half, yes. But when these companies are relisted or sold, they may constitute, for a nanosecond, a larger percentage, but then they will be gone.

[A]

Well, having talked about private equity and its methodologies, I think I'm right in saying you very rarely make use of gearing yourself at the trust level. That's another policy which you've had, I think, from the beginning. Is that going to change or is that something that you might add to the arrows in your.

[B]

I'll say exactly the same thing that I said last time we talked about this, which is we do have the opportunity to gear the portfolio. We have a facility in place with our custodian, Northern Trust, and we can borrow up to 20% of world facets under management. We did, in fact, borrow £5 million early last year. To make sure that the facility worked. We carried out one or two small operations and then we paid the money. The money is there for us to pursue specific situations. We're not going to gear the portfolio in the normal run of things. We don't really need to these days, as you pointed out, we're pushing 500 million. Now. We would obviously like to do a secondary or buy another fund, if that one was available, to push us over that threshold. When investment trusts are worth more than 500 million, they become more eligible for mainstream investment from some of the larger corporate or institutional investors. So that is definitely a target for this year and we hope to achieve that. But the combination of Nippon Active Value Fund and various Dalton Funds, Nippon Active Value select, which is their Closed end version of us and some of their own funds labeled Under Dalton gives us a kind of concert party which allows us to buy as large an amount of stock in most companies as we could possibly want. Certainly most of the small and mid cap companies that we typically buy. If we want to go up the scale and start to buy bigger companies, then yes, we may need to borrow to get additional firepower. And we are always talking to Japanese banks about lending us money in Japan if need be. We've had one interesting departure which I will mention briefly in one of the stocks in which we are invested, a company called Kibius Technology which Evolve Maker. We managed to persuade management there that this would be a very useful vehicle to make small acquisitions if you'd like to turn our ability to buy smaller companies and private companies using Gearing, which Japanese banks are far more likely to lend to Japanese companies than they are to foreign activist investors. So we have just concluded the first acquisition in Helis Technology where two of my colleagues sit on the board and this is something that we're hoping would expand over time. Our investment remains obviously in Helios itself and that is up about 35% since we bought it. So everything's going in the right direction and we will be using that as a vehicle to make further acquisitions and try and grow EBIS technology over time.

[A]

You talked about consolidation there. Obviously in the investment trust sector. There aren't that many trusts in the Japanese sector, but there are some, either activists or smaller companies which perhaps have not performed as well as you put it mildly. Do you think that there is scope for further consolidation within the investment trust sector as opposed to across a kind of broader playing field?

[B]

Well, when we talked a year and a half ago, I said that I thought the remaining Japanese investment trust were the obvious ones run by people like JP Morgan and Bertie Gifford. And I didn't see them being in a hurry to allow us to take any of those over. There is one now, Beatty, Gifford, Shin Nippon, that is definitely in everybody's sights. The board has become quite vocal about its disappointment with management of the funds. We and a number of others have let it be pretty well known that we are there. We would love the opportunity to talk to the board and see if there was a way in which we could possibly roll that fund over into us. It has one advantage over some of the rollovers that have been done in the past and that is that it's a smaller companies fund, albeit long only, so I won't say never again. There is always a possibility that the board, which is giving the new manager a chance to show their metal, will run out of patience and then there could be a process in that particular fund. I can't think of any others that are particularly vulnerable.

[A]

Right, and they have announced a tender offer, haven't they? Made a gift for Chinmiphon and made some other changes?

[B]

They done a buy in? Yeah, they tried to buy some stock in and try and do something about their discount, but the performance is still pretty poor. So yes, we are the top performing Japanese Investment Trust over 5, 3 and now I think one year we have, and we've talked about this before, another fund that looks a little bit like us who were making hay about six months ago because first time in history they were actually outperforming us over six months. They're no longer doing that.

[A]

So maybe there's a moral there, I don't know. But anyway, looking to the future and the future of your strategy, I always had to ask this question. What are the kind of risks that are out there that could interrupt what has been your very steady progress as we described since you launched? What are the major issues that could go wrong?

[B]

Well, there's one major issue that could go wrong in so many ways and for so many people. And you already mentioned him previously, his Name is with TNN's in P. And you never know what that particular individual is going to cause to markets in general. So yes, I think markets are vulnerable to reversal at this point. They've done incredibly well. And we're speaking at a time two days after he's launched a war against Iran. We don't know how that will pan out. And certainly the stock exchange is voting with its feet today and all markets are off. So markets can go into reverse and that will slow us down. I think in terms of specifics for us, we still run our portfolio on the basis of what we call a margin for safety. So these are companies that, as I've said before, run too much cash, too many cross shelvings, too much non operational assets, whether property or art or in one or two cases, it's very hard for us to get badly hurt in these sorts of companies because most of them can actually survive if they didn't sell another widget for two or three years. There's a lot of comfort in the capital base of the companies that we go after. We are trying to make them leaner and meaner and over time this margin for safety will start to disappear from companies in which we're invested, providing they respond to us or we have some luck. But to date, in six years of doing this, we haven't had a single stinker. There may be one or two stocks which we lost a bit of money on or we decided to get out of because it wasn't doing what we thought it was going to do, but we haven't lost a great deal of money in a single counter and I don't see that happening. So can we keep going the way we are? Yes, at the moment we're accelerating and as I say, I'm expecting a number of positions in companies where we've had 20 to 30% to unwind in the next few months. One company I thought was going to unwind is now talking to us about can we have a strategic business alliance and work together? So we're going to have that conversation with them and see whether that will be possible to do something like we're doing with Helios Techno, perhaps even on a bigger scale. But yes, a lot of the things that we've been waiting to happen are now happening and it's a question of replacing those stocks with new ones and starting the process all over again. So now I'm still very bullish.

[A]

So that was Paul Folkestev. It's the chairman of the management company that looks after Nippon Active Value, the investment trust that's been listed on the market since 2020.

[C]

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