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

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.

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.

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]

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

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.