We are pleased to bring you the following interview with Scott Callon, Partner and CEO of Ichigo Asset Management, Ltd.
Scott serves as Chairman and Representative Statutory Executive Officer of Ichigo Group Holdings, a Japanese real estate asset manager listed on JASDAQ. Previously he served as the Managing Director and Head of Equities at Morgan Stanley Japan where he was also a member of the Executive Committee. He has been Chairman of the Foreign Securities Council of the Japan Securities Dealers Association (JSDA) and Chief Executive Officer of PCA Asset Management of the UK Prudential Group. Scott is the author of Divided Sun: MITI and the Breakdown of Japanese High-Tech Industrial Policy, 1975-1993, and was awarded the Arisawa Prize for the book. Dr. Callon holds a Ph.D. in Political Science from Stanford University and is a 1986 Phi Beta Kappa and summa cum laude graduate with highest honors from the Woodrow Wilson School, Princeton University.
MOI Global: Tell us about the genesis of your firm. What goals did you have at the outset, and what operating principles have guided you since then?
Scott Callon: We started the firm in early 2006, so it has been five years now. Our goal was and continues to be to serve our investors by investing wisely and judiciously on behalf of their enduring missions (we invest primarily for endowments and foundations), to partner with great companies and management teams, and to support positive change in Japan. We are high-commitment value investors. We believe that valuation ultimately is the single most important determinant of investment merit and ultimately returns. We seek to be shareholders of outstanding companies that have demonstrated their excellence over many years and yet trade at substantial discounts to their fundamental value.
Japanese valuations are truly unique: it is the only market in the world where you can buy consistently profitable companies at a discount to their tangible asset value.
We are Japan specialists and invest only in Japan. Japanese valuations are truly unique: it is the only market in the world where you can buy consistently profitable companies at a discount to their tangible asset value. We strive to invest with respect and humility – it is an enormous challenge to run a public company and the management teams of our portfolio companies have our deepest respect. We seek to focus our portfolio on the best return opportunities available and have only about ten major positions. We are not in the business of diversification – we expect to be only a small part of our clients’ highly diversified portfolios and thus we concentrate only on what we consider to be our very best investment ideas.
MOI: You have received much publicity for successfully standing up for shareholder democracy in Japan in the case of Osaka Steel’s proposed merger with Tokyo Kohtetsu in 2006. How has this event shaped your investment approach since then and what lessons have you learned?
Callon: We think Tokyo Kohtetsu is Japan’s best small steel company. We thought that back in 2006 and still think that today. We have never sold a share. With all due respect to the proposed buyer, which was a larger, also extraordinarily successful steel maker, we and a large number of other shareholders had a strong desire to remain as shareholders of Tokyo Kohtetsu. Unfortunately, we could not reach agreement on what the Tokyo Kohtetsu shareholders hoped for as an acquisition price, so we and nearly three-quarters of the individual shareholders chose not to vote for the acquisition, which proved to be the first successful shareholder-led proxy in Japanese history.
For us, the first key lesson was that Japanese shareholders are willing to stand up for their rights. The second was that we as a firm needed to work harder at building deeper relationships with our portfolio company management teams to reach agreement on the way forward. In 2006, we had just started out as a firm, had not yet built the depth of relationship with Tokyo Kohtetsu that we typically aim to achieve, and quite frankly were taken by surprise at the merger announcement. The outcome may have been in its own way history-making, but it also strengthened Ichigo’s commitment to building and maintaining close relationships and alignment with our portfolio companies.
MOI: Help us understand your investment approach more broadly. What are the key criteria you employ when making an investment decision?
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