Interview 003_Tomoaki Tsutsumi
Dec 25, 2011
byInvestment in Japan
Company: Keystone Partners Co., Ltd.
Graduated from the Department of Economics at Doshisha University in 1989, and received his MBA at the Hitotsubashi University Graduate School of International Corporate Strategy / Financial Strategies Course in 2007. Following his graduation from Doshisha, he joined Sanwa Bank Ltd. (now Bank of Tokyo-Mitsubishi UFJ). At the head office sales department, the business research division and the New York branch office, he served as deputy director of corporate banking, deputy director of structured finance, and deputy director of corporate finance; accumulating a wealth of experience in loan advisory services for investment banks. Following the bank’s merger, Tsutsumi constructed a business model for collaboration between the private equity and investment banking businesses, and launched a business succession fund for medium-sized enterprises. In November 2007 he transferred to CSK Holdings Corp. as an executive officer, and was installed as executive vice president of CSK Principals Corp. Responsible for the investment operations of the CSK Group, in April 2008 he established the Japan Corporate Investment Co., Ltd., with a 20 billion yen fund for the business succession of SMEs. With the withdrawal of the CSK Group from the investment business in February 2009, Tsutsumi took over their private equity business through a managed buyout of the equity interest held by CSK, and established TTK Partners Co., Ltd. as president and CEO. In May 2009, he went on to establish Keystone Partners Co., Ltd. together with Koyama, who is a Co-CEO and was appointed.?
Please describe both your investment philosophy and methodology.
The fund our company administers is one that was started with the investment strategy of providing capital for recovering Japanese companies.
In Japan, currently, when a finance institution provides financing to a recovering company, various restrictions are encountered. These include problems of transaction profits associated with the generation of reserve amortization in the assets test of the Finance Agency, and the rationalization of operating assets associated with the introduction of new BIS restrictions. As a consequence, as things stand now, it is exceedingly difficult for even a company that has a good recovery scenario to obtain financing smoothly. To answer such societal needs as this is an important mission of our fund. In terms of our investment philosophy, in addition to “providing outstanding value to our investors,” we consciously strive to “spare no efforts in pursuing social significance in investment acts,” and to “not only care about our own profit, but also share business profits in a well-balanced manner with all kinds of stakeholders in the businesses being invested in, and secure an appropriate return on investment.” What is particular about our fund management is that we place great weight on income gain by holding portfolios which are focused on credit operations wherein (1) reduced acquisition of existing claims = 50%, (2) bridge capital provision = 30%, and (3) short term capital provision = 20%. Also, the recovering businesses we target are healthy small to medium businesses, wherewith, by resuscitating their financial transactions, “small loan diversification and short-term recovery” are realized. In addition to the term of these investments being short, as in two years or so, long-term returns such as existing claim redemption with a premium are also combined. Therefore, as a result, high IRR can be secured.
Please tell us the current investment opportunities you are currently focusing on.
Due to the sluggishness of domestic stocks, developing nation stock transactions, for example, are being given a lot of attention. Based on my experience in international finance, however, I would have to say that there are not all that many fund managers who are able to completely control sovereign risk, inclusive of foreign exchange risk. What this means, I think, is if you make long-term investments, then, reasoning from macroeconomic theory, there will be many opportunities in which you can get a certain return. I also understand, however, that, in practical terms, the trends in the economic growth rates of China, etc., and their investment yields and market sizes and so forth, cannot be disregarded when compared to the indexes for our domestic stock market. That being the case, if we are talking about solid investment opportunities, then, even when investing in domestic enterprise, it is essential that we choose investment strategies and techniques that will enable us to enjoy a return commensurate with the economic growth of China, for example, indirectly as a result of the outbound investments going to that country. If, on the other hand, investment strategies and techniques can be selected wherewith domestic businesses that were struggling can secure growth capital as a result of the inbound investments from China, and wherewith they can get back on a growth track, that also, I think, is a sufficiently attractive investment opportunity. With our recovery fund, we provide support to recovering companies to expand their sales, especially in support of expanding sales to the Chinese market, given the sluggish market growth rate in our own domestic market. At the same time, while working to secure the survivability of Japanese companies, we are also providing support for the purpose of securing growth capital through capital tie-ups with foreign businesses, which could be thought of as one of the outlet strategies of our fund.
Please explain the motivation behind your involvement in the money management industry.
For about 20 years I worked for a large bank, mainly in the research division, investment bank, and foreign branches. Unfortunately for Japanese banks, the liberalization of financing and collapse of the bubble economy coincided. As a result, enormous bad credit was generated, which took about 10 years to recover. At the same time in the 1980s, European and American nations became alarmed by the explosive growth of foreign assets held by Japanese banks, raising several BIS restrictions. Consequently, the “main bank system peculiarly geared to Japan with its undeveloped capital markets” that was a feature of Japanese banking collapsed. This led to a strained and awkward relationship between banks and customers. When I first joined the bank, I began working with a great sense of purpose, feeling we were conducting financial operations with the high aspiration of contributing growth to the Japanese economy. However, bank management has slightly changed. In that environment, I was able to work in fund management involving the bank’s principal investments. This opened my interest in fund/investment management; I began planning for the future. In general, after graduating from university, a typical finance man will begin his/her career at a major investment bank in Europe and America, gaining hands on experience, whether it be looking at investment targets, IPO incentives, etc. Then he/she will go to graduate business school, and upon getting an MBA, he/she will finally become (after some time) a senior partner at a fund. That is the standard finance man success story. However, I also think that as a Japanese finance man, to work toward building such a career as mine is a way to gain knowledge and experience in the investment management world, as well as becoming a manager capable of making important advanced investment decisions.
Please tell us some of your thoughts about being a Japanese finance man.
One of the things that led me to want to be a Japanese finance man was the book Danshi no Honkai [The Great Ambition of a Man], by Saburo Shiroyama. This is a novel about two historical figures, Osachi Hamaguchi, who became prime minister, and Junnosuke Inoue, who became the governor of the Bank of Japan. It tells the story of how these men risked their lives in the face of difficult problems and resolutely carried out their missions in life. I read this novel when I was at university. Then I joined the bank because I wanted to validate my existence with work that would “contribute to the growth of Japan’s economy.” In reality, in this way, I now want to realize that goal through the investment management business, and, with that purpose, I do my daily work. But I do have something to say to the finance man in modern Japan. And that is this: even if you don’t put your life on the line, at least “become a finance man with backbone = a man able to make solid decisions,” so that you can provide real solutions that are responsive to the problems of your customers and to the needs of society. This will mean that you will have to distance yourself from “organizational profits,” “concerns about how one is evaluated or treated,” and “organizational decisions that kowtow to the higher-ups.” Recently, in particular, as a result of the unification of financial organizations, I think we see a lot of shortsighted decision-making, such that, if Bank A says no to a prospective borrower, then Bank B will also say no. Furthermore, due to over-submissiveness in the face of tests and guidance from the official governing authorities, I think that the risk-taking of all the financial institutions has become the same. My hope is that some Japanese finance men will come along who, somewhere in their thinking, will say “for the future good of Japan,” or “for the future of the region,” and will be able to take commensurate risks, and also to control those risks.
What do you consider to be the key paths to growth?
When one speaks of paths to growth, there are all kinds of issues involved, such as the future of the nation, for example, or the future of the company, or one’s own future. What is common here, however, is that this subject is recently being taken seriously. What that means is that, “even in the midst of ambivalence, the power to forge ahead” is necessary. Take myself as an example. I once had the experience of working for a large bank, but now I manage a fund management company. This company today is a medium to small to tiny company, in terms of personnel and business history. As a consequence, we have absolutely no know-how or business foundation that has been left to us by our senpai [seniors] who went before. We have to build everything up from scratch by ourselves. Although this is not exactly what John F. Kennedy said, we need to always think “ask not what the company can do for me, but ask what I can do for the company.” Unlike the giant corporations that are supported by abundant capital and business history, what is now required is to move ahead, always making decisions, despite time constraints, that are based on a limited range of capital, know-how, and information. In such an environment as this, you are in no way going to be able to handle work on the job site with know-how gained in a large corporation, where you could muster an entire staff of specialists in making work decisions. Even if there is a degree of ambivalence at decision-making time, you must have the strength to come up with ideas and resolve issues while moving forward. I think that is very important to the process of growing a business. I think this kind of self-solution type of thinking may be very important in the paths to growth now being sought.
Would you recommend any particular investment book? (Please write in a summary of the book, together with your thoughts and evaluation.)
This is a little difficult, but, basically, there is one thing that a person engaged in money management, or making investments, has to understand. And that is that he or she must be capable of a high level of intellectual concentration. This is demanded by current investment theory. The reason that is so has to do with the almost abnormal development of finance theory, with the astonishing advances in information and computer technology, and with the global level of growth in investment activities. As a consequence, specialized books on finance technology that until now were only of concern to a very few specialists are now must reads for finance service organizations, fund managers, and even individual investors. The book I am recommending was written to explain exactly how the basic principles of finance theory are to be used in providing sound and practical solutions to actual investment problems. The reader will need some knowledge of statistics and calculus, but I think it is an excellent book for understanding the concepts in a systematic way.
Book title: Kinyu Kogaku Nyumon[Introduction to Financial Engineering]
Author: David G. Luenberger
Publisher: Nikkei Shinbunsha [Tr. Note: Original English title: Investment Science]
Please tell us what media (newspapers, magazines, websites, etc.) you check on a daily basis in order to gather information, particularly information pertaining to business operations.
The newspapers I check are Nikkei Shinbunand the regular dailies. The magazines I check areToyo Keizai[Asian Economics], Nikkei Business, and others. I also check the Google News website. In truth, this information only includes information that can already be disclosed. For actual investment management, the main point is to figure out how to skillfully and quickly gather information on your own targets. In general, when you have in mind a company targeted for investment, you will need the following four kinds of information for your analysis: 1) data on the financial situation in the country to which that company belongs, 2) data on developments in the industry to which that company belongs, 3) data on the financial condition of that company, and 4) data on that company which are unrelated to finance. Some of that data is available as past track data saved on media, but as expected, the latest information must be procured directly from the workplace. It is of the greatest importance that you actually visit the company to get an on-site feel for it. It is well known that information becomes stale, but what is more important is the fact that information can only be collected from the place where the people who have that information are. Before collecting information, how about starting with acquiring the information that you yourself can send out?
That’s all the questions we have. Thank you very much for your cooperation.
Managing Director, Investment and Research
This article originally appeared on August 23, 2011. Any views presented in this article are as of such date and are subject to change.
This article and the information provided therein are not a recommendation to purchase or sell any security, nor are they intended to constitute the marketing of, or a solicitation for investment in, any investment product.