We are pleased to bring you the following video and transcript of a conversation with Howard Smith in Tokyo in 2012.

Howard joined Indus Capital in 2002 and became its Japan representative in 2007. At the time of our conversation, he advised a $4.5 billion equity fund management company based in New York, which invested in Asia-Pacific equity markets, including Japan.

Howard takes a keen interest in corporate governance and capital efficiency issues. He has lived in Japan for more than two decades and previously worked for ING Baring Securities and Nomura Research Institute in Tokyo.

The following transcript has been edited for space and clarity.

The Manual of Ideas: We’re looking forward to learning from you how to find value in Japan and not get trapped by some of the statistically cheap companies. Before we do that, perhaps you could tell us a bit about yourself and how you got interested in Japan and investing here.

Even five years ago, Japan still had a stand-alone presence as an asset class. There was still a bucket for Japan equities in people’s portfolios. Increasingly now, Japan is just a part of a broader Asian approach to equity investing and even then, Japan seems to find it hard to compete with the interest levels people pay to China or India or the ASEAN markets.

Howard Smith: I’ve been in Japan about twenty years now altogether, on and off. This stint is about fifteen years. The first stint was about five years.

It’s one of those long stories. I came here with the intention of being here for a year and ended up staying here for five years and I worked at Nomura Securities for a while in the early ‘90s. I went back to the UK for a while and I’ve been back in Japan for fifteen years this time, five on the sell-side with a company called ING Barings, which no longer exists, and ten years at Indus Capital. And my job with Indus Capital is visiting companies from a fundamental, bottom-up perspective and trying to find inefficiencies, pricing inefficiencies, and recommending ideas to a portfolio management team based in New York.

We run a $700 million Japan long/short fund from New York and we have a $200 million long only fund that’s also managed from New York. In addition to that, we have Japan investments spread around some other Indus funds, so in total we probably have before leverage, about $1.1 or $1.2 billion of Japan assets under management. That’s the approach.

MOI: And if we look at Japan and the opportunity set here, what’s really attractive to you? Where do you find areas of inefficiency that you feel you could exploit well as an investor?

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