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Letter to our portfolio company CEOs (translation)

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Hibiki Message

Letter to our portfolio company CEOs (translation)

Dear executives of the portfolio companies

Thank you for your continued support of Hibiki Path Advisors. My name is Yuya Shimizu, the CEO and Chief Investment Officer of Hibiki Path Advisors.

We manage our clients’ accounts and invest part of the money in your company’s equities on their behalf. Let me introduce our firm to you, though I trust many of you do know about us. The history of the firm goes back to the winter of 2015, when I first started the business in Singapore. Since then we have been engaged in asset management business investing in Japanese equities. Thanks to your continued support, our assets under management have been growing steadily. Please kindly visit our website and read about the firm and our investment philosophy and discipline, when you have a moment. This may be my first direct contact to some of you, who may be the managing director or a member of the company management – I am looking forward to meeting many of such people very soon.
 
A “letter” is a very primitive form of communication, now that the use of the internet has become the norm of the society and whatever information instantly spreads around the globe online. I am using such a primitive form of communication today, since I see a higher value in communication through paper medium as such medium is used less and less (you reading this letter may be an indication that this form of communication is actually quite effective!). While face-to-face live communication has become increasingly important, you cannot afford to meet every single investor in person, particularly if you are in charge of managing a public company. I respect your undertaking of huge responsibilities. I would be too happy if my occasional “letters” serve as supplements to boost your thinking, without making you commit too much of your time or making you feel obliged. Our goal is to unleash your mind to make the right decisions.

Today, I am hitting the keyboard as there is a book that I would highly recommend to you. It is a book titled “The Outsiders” written by William Thorndike Jr (the Japanese title is “破天荒な経営者たち”). It is about success of unconventional CEOs in the U.S. who radically boosted corporate value. Its third chapter focuses on the turnaround of General Dynamics from difficulties by Bill Anders as a CEO of the company, and the continued success by two subsequent executives.

Their story is full of good lessons to be learned – good even for today’s Japan and world. I do hope that their “approach” or “way of thinking” will give you “inspiration” or some reference. Part of the story is attached to this letter.

You will see, as you read it, that it typically discusses the “maximisation of corporate value”. In other words, it is the “management of the company with emphasis on shareholder value”. While the company engaged itself in M&A activities to reorganise the industry, Japanese government revised taxation on spin-offs and share exchange, as well as taxation on restricted stock affecting listed companies. The “invisible hand” of the government seems intended for promoting merger and acquisition in many industries. The thesis of such is improvement of profitability of a business (which leads to improvement of competitiveness of Japanese industry as a whole), rather than making the business bigger, and I consider General Dynamics story to be a simply seasonable subject.

Japan as a whole is now at a big turning point and amid the turnaround. Businesses in Japan are in need of a “new approach” to accomplish a turnaround in many relevant aspects of their business, such as operational efficiency, vitality of the industry as a whole, and diversity of their employees. The future of Japan falls on the shoulders of leaders in different areas of business. I consider executives of a company, such as CEOs, presidents, and directors, to be among the leaders with the most significant influence and great importance. You may encounter many hardships in your work life when you are too busy performing your duties, unable to make a decision, or challenged by opposing forces. I would be too happy if you would be confident and courageous enough to keep going to achieve your challenging goals, just like Bill Anders did.

The last point I would like to make is that, despite his retirement from General Dynamics after three years of management (and a year as a chairman), Bill Anders has lived the American Dream and enjoys his active second life. This has been achieved through significant improvement of the corporate value and equity-based remuneration designed to reward such achievement (and he still holds equities in General Dynamics). The strong linkage between his hard work recognised and his remuneration through his shareholdings provided him with financial resources sufficient to establish a flight museum for local people after retirement from General Dynamics, despite his humble background and being a non-founding member of the company with no significant financial gains upon its listing. People nowadays live a life of 100 years, and the traditional Japanese personnel systems that value continuity, such as posts of advisors to the business and the revolving door from the government to private corporations, are becoming less common. In addition, equity-based remuneration is becoming more and more common, and the “definition of the management’s success” is dramatically changing in a positive way. Significantly boosting the corporate value with good managerial judgement without being afraid of what former members of the company, advisors, and your superiors may think, and using the improved equity value and the recognition as a great means for your second life is no longer a career plan only business founders are entitled to but also non-founder members can enjoy to expand possibilities of life and make their life shine.

The second life I refer to here is not just about retired life but is to do with anything through which you contribute to the society with your experience of life, such as engagement in a new job (e.g. serving for a different company as a president or external director) or philanthropic work. Should a competitor offers to acquire your company at a price much higher than what you expect to be reasonable, you, a shareholder of the company, would be able to make judgement from the shareholder’s point of view, as well as from that of the management. In addition, you would be able to offer a financial guarantee for such acquisition, which may promote M&A activities among listed companies and an industrial structural revolution.

I am quite certain that reading the book from various aspects like this will provide you with confidence that the success stories are not just fairy tales in the imaginary world but is something you could achieve in real.

Hot summer has arrived – please do take care of yourselves.

7 July 2018


Chief Investment Officer
Hibiki Path Advisors Pte. Ltd.

Yuya Shimizu