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Stock investor with 1,900% gain breaks long silence in Japan

Bloomberg • 9 min read
Stock investor with 1,900% gain breaks long silence in Japan
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For almost three decades, Stephen Butt’s company mostly stayed behind the scenes, a long-term investor in the tradition of Warren Buffett that saw little reason to draw attention to itself.

Silchester International Investors quietly bought shares in some of the world’s blue-chip companies, watched them grow in value and racked up a return that surpassed 1,900%. The former Morgan Stanley banker became super-rich in the process, but the investing world and public heard little from his wildly successful firm.

These days, the money manager that oversees more than US$40 billion ($53.3 billion) is increasingly speaking out with calls for change.

In one of Silchester’s biggest markets, Japan, it’s urging companies to improve their capital allocation and pay out more to shareholders. Silchester’s demands have caused the conservative regional banks and others in its sights to take note.

Silchester generally doesn’t take a public profile, but will do in extreme cases, a representative for the firm said in rare comments to media, adding it has done the same at other companies in the past.

While Silchester says nothing has changed in how it operates, analysts see the investor’s moves — and companies’ responses — as another example of how the country’s stock market is evolving. An overhaul of corporate governance rules started about a decade ago is making chief executive officers more receptive to shareholders, and that’s one big reason why the Nikkei 225 Stock Average finally surpassed its historic peak reached in 1989.

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Calls for buybacks and dividend increases “are now falling on open ears in Japan,” said Jesper Koll, expert director at online brokerage Monex Group Inc. in Tokyo. “It’s classic Japan in the sense that it takes forever to unlock something, but once the consensus is reached the ball gets rolling quickly.”

Silchester has been investing in Japan since 1995. It has largely pressed management teams in private, while at times also going public with demands, such as when it filed a request to the Tokyo District Court in 2007 to try to stop automobile product retailer Autobacs Seven Co. from selling convertible bonds. The court rejected the demand, Autobacs said at the time.

In 2022, Silchester embarked on a series of shareholder proposals at companies in the country. Stock owners that hold at least 1% of a Japanese stock for at least six months can propose items to be voted on at the annual general meeting. Silchester called for special dividends at four regional lenders, one of which was Kyoto Financial Group Inc. 

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Kyoto Financial had never received a shareholder proposal in its 81-year history. It consulted lawyers and other experts before deciding to oppose it. Silchester, which has held Kyoto Financial’s shares since 2006, responded in a public statement, calling the lender’s stance “naive and lacking financial acumen.” 

It said management was seeking to retain capital for its own comfort rather than the good of shareholders or the bank. Regional lenders should pay out half their profit from core banking business and all the dividend income on their equity holdings, the investor said.

Shareholders voted against Silchester’s proposal.

The money manager targeted Kyoto Financial again last year, along with a construction company called Obayashi Corp. It called for special dividends at both and a share buyback at Kyoto Financial. Shareholders again said no.

Now attention is focused on whether Silchester will make proposals during this year’s AGM season. Many Japanese companies hold their annual meetings in June, with shareholder proposals expected to be announced in coming weeks.

“We would like to continue to explain our thinking and listen to their thinking,” Nobuhiro Doi, president of Kyoto Financial, said in an interview. “I don’t think our relationship is a hostile one.”

A spokesperson for Obayashi declined to comment on its communications with shareholders. In a statement in May, the company said its board opposed Silchester’s proposal because it would obstruct Obayashi’s growth strategy.

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But earlier this month, Obayashi’s shares surged more than 20% in a single day after the company raised its return on equity target and dividend forecast.

Kyoto Financial shares have more than doubled since Silchester announced plans to submit its first proposal in April 2022, another indication that vocal public stewardship can pay even when votes are lost. The money manager is the bank’s largest shareholder with a 6.6% stake, according to data compiled by Bloomberg.

Silchester isn’t an activist, but it takes a strong interest in how companies that it invests in are run, the representative for the firm said.

Kyoto Financial Outperforms Peers | Share price more than doubles since Silchester goes public with demands

Regardless, Silchester’s Japan stocks are rising fast. The yen’s plunge is boosting exporters’ profits. Inflation is finally taking hold. And some of the biggest names in investing, from BlackRock Inc. chief Larry Fink to Buffett himself, have been making pilgrimages to Tokyo and talking up the market.

Yet longtime Japan watchers are just as interested in Silchester’s moves.

“It’s a deep value investor,” said Masatoshi Kikuchi, pan-Asian chief equity strategist at brokerage Mizuho Securities Co. in Tokyo. “I think it is usually soft engagement type, conducting engagement in private,” he said. “My guess is Silchester saw an opportunity to trigger changes.”

University of Oxford graduate Butt worked at Morgan Stanley’s asset management business in London in the 1990s, where he served in roles including chief investment officer. 

He set up Silchester with former colleagues from the US bank in 1994, naming it after a quaint English village and taking a similar investment approach to his time at Morgan Stanley — buying stakes in companies outside the US that it considered undervalued. It won money management mandates from endowments, pension funds and wealthy families. Even today, most of Silchester’s clients are based in the US, according to a person familiar with the matter, who asked not to be identified discussing private information.

“We like the fact that their sole focus is on managing one strategy,” wrote Michael Binz, then a senior research analyst at Hammond Associates, in a 2008 analyst briefing note for Texas Tech University on Silchester. “By focusing solely on international equity investing they are able to develop unrivalled expertise in the asset class.”

Japan was one of the countries that Butt and his colleagues covered at Morgan Stanley, and when they set up Silchester, one of the firm’s early backers was the Japanese life insurer Asahi Mutual Life Insurance Co. Today, Silchester holds stakes in dozens of Japanese stocks. Its biggest holdings include carmaker Honda Motor Co, advertising company Dentsu Group Inc and financial firms such as Sumitomo Mitsui Trust Holdings Inc and Nomura Holdings N33 -


About six years ago, Butt gave a rare insight into his investing influences.

Dressed in a grey suit with a turquoise handkerchief, he lectured a packed audience in London on the legacy of the late value investor Benjamin Graham.

Graham’s writings are a “treasure trove” for any serious investor, Butt said, based on a brief for the event organized by the UK branch of the CFA Institute.

“He set out enduring principles,” Butt, now 73, said during his 2018 talk. “It’s not clear that much has changed.”

An investment of US$100 in Silchester’s international equity program on Dec. 31, 1994, would be worth US$2,031 before investment management fees as of the end of December. That’s a gain of 1,931%, or 10.9% per year, outperforming the MSCI EAFE Index, which covers developed-market stocks in Europe, Australasia, Israel and the Far East, according to data seen by Bloomberg.

Butt and his family are worth at least US$750 million through their majority stake in Silchester’s parent company, according to an estimate by Bloomberg. That makes him one of Britain’s richest money managers, alongside Brevan Howard Asset Management co-founder Alan Howard and BlueCrest Capital Management co-founder Michael Platt. The representative for Silchester declined to comment on the valuation.

Butt and his wife, Caroline, set up the Calleva Foundation, a charity that supports medical research at Oxford and academic research at the National History Museum and other institutions.

Not all Silchester’s wagers have paid off.

The investor became a major Credit Suisse shareholder in 2018 and still held a stake three years later when the troubled Swiss lender’s stock had slumped. Credit Suisse was taken over by UBS Group AG last year. Silchester is also one of the biggest shareholders of GAM Holding AG, the Swiss asset manager that has plunged 98% over the past decade. 

Silchester’s Japanese regional bank bets have fared better. Investors have been buying the shares on expectations that Japan will soon end eight years of negative interest rates, which should boost the lenders’ earnings. 

Another factor in share-price gains in Japan is a push by the Tokyo Stock Exchange to shame companies that trade below book value, according to Nicholas Smith, a strategist at CLSA. This has “perfectly encapsulated the zeitgeist” and spurred a raft of share repurchases, he said.

All but two of the 78 lenders in the Topix Banks Index trade at less than the value of their net assets. Kyoto Financial announced a buyback of as much as 13 billion yen ($120 million) in November. Toyoki Sameshima, an analyst at SBI Securities Co, called it a surprise.

Still, some observers aren’t sure Japanese executives have really changed their views on how companies should be run.

“There are more engagement activities” by Japanese asset managers, said Shoko Shinoda, a fund analyst at Rakuten Securities Inc. in Tokyo. “But I’m hearing Japanese companies’ management is yet to fully understand them.”

Silchester itself says it’s encouraged by Japan’s corporate governance reforms, but there is much work to be done.

“It had been too peaceful,” Kyoto Financial’s Doi said. “We have a lot to learn from investors.”

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