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Activist investor Faralon Capital Management has achieved the highest position in one of Japan’s largest insurance groups and is driving rapid change in investment and governance as it aims to tap on the sector’s “final frontier” opportunities.
The San Francisco-based company has built a 4-5% stake in T&D Holdings, and is pushing to reduce investment risk at a faster pace, focusing on core insurance businesses and focusing on conglomerate discounts, according to those familiar with the issue.
It also proposes the appointment of two new external directors, claiming that the current board has insufficient experience and is inappropriate to determine an overseas merger and acquisition.
However, the company with a market value of $12 billion has already declared opposition to Faralon’s board candidate. The annual meeting is set for June 26th.
In a 63-page presentation, T&D said that he was pushed back against many proposed changes without naming the company, and that the board could not confirm that candidates meet the requirements of external directors or “contribute to improving corporate value.”
Describing herself as an engagement fund, Faralon is understood to have been in a constructive dialogue with T&D since 2023, but people add that they believe the company can move faster to strengthen its business.
The fund declined to comment has been shareholders of various sizes since 2008. T&D did not immediately respond to requests for comment as its share price has risen 14% this year.
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Faralon manages $42 billion in managed assets, and is increasingly speaking in his shareholder activities in Japan, and is encouraged by the Tokyo Stock Exchange’s crusades of corporate governance reform.
It named its name in the country with a high-profile gamble, including a controversial engagement with Toshiba, which successfully set up an external director just before the conglomerate went private.
In its first major public move since winning the position of around $800 million at Toshiba in 2023, Faralon announced its shares in Astellas, one of the nation’s largest pharmaceutical companies earlier this year.
Activists target companies across the tech sector to auto parts, but the highly regulated insurance sector remains largely untouched.
Singapore-based fund Effisimo Capital Management is one of the major exceptions to gaining great positions in Daiichi Life and LifeNet, where Faralon was also the first investors.
In addition to what Faralon believes to be a strong underlying business, especially the fast-growing dyedlife unit, the fund believes T&D can take advantage of the growing interest from private equity in Japanese insurance liability.
For example, private corporations can purchase blocks of policies that are expensive for insurers to maintain due to capital requirements and low interest rates. Buyers can better manage their cash flow by adopting a high-yield investment strategy. The Apollo merger with Athens in the US in 2021 is considered one template.
Many companies hope that Japan can provide the next step to developing the industry. Apollo already has an office here with Athens. KKR has a strategic alliance with post-Japan insurance through the Atlantic sector of the world.
“Japan seems to be the ultimate frontier of high-quality debt… It has a huge number and they are almost undeveloped,” said an industry senior.
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So far, most Japanese transactions have been modest, with industry insiders citing regulators’ attention as a reason for a more aggressive move or a complete acquisition of a company not happening.
One of Faralon’s other major concerns at T&D is that the company takes away too much stock risk, without the company making the return necessary to justify its decision, so it prioritizes its investment in insurance.
The fund, according to people, believes that T&D has a larger shares than its highly valued because it designates some of its interests as “pure investments,” and therefore it is a classification the fund disagrees with.
“Stocks reclassified from strategic stocks to pure investments are managed by the asset management department, which determines whether to continue or sell them,” T&D said in the presentation. “About 39% of the cumulative amount has been reclassified as pure investments have been sold so far under the equity risk reduction policy.”
