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Hedgeweek Comment: TCI and fellow activists may win through in Japan after all

Faced with sluggish growth and a backlash abroad against restrictive practices in its financial markets, Japan has set out plans to revitalise itself as a global financial centre. The world's second-largest economy is desperate for foreign investment and is especially keen to woo hedge funds, which have been fleeing to centres such as Singapore to escape operating constraints and uncongenial tax rules.

Last week, the London-based Children's Investment Fund saw all five of its proposals, including higher dividends and more outside directors, rejected by the annual general meeting of Tokyo-based electricity wholesaler J-Power, two months after the Japanese government blocked a bid by TCI, already the company's largest shareholder, to double its stake in the firm, to 20 per cent.

The government took advantage of a new law that allows it to block foreign investment in sectors considered vital to national security, prompting EU trade commissioner Peter Mandelson to describe Japan as 'the most closed investment market in the developed world.'

Activist funds such as TCI and Steel Partners, a US hedge fund manager that has been campaigning for change at Japanese wig maker Aderans, have been pushing hard for higher returns and greater shareholder rights in Japan, but largely in vain up to now.

Now Takafumi Sato, head of Japan's Financial Services Agency, the industry regulator, has insisted that Japan is not closed to foreign investors, including those campaigning for corporate change. At the Reuters Japan Investment Summit this week, Sato expressed support for the Tokyo Stock Exchange's push to protect minority shareholders through rules on new share issues.

Japan has recently also amended its tax code to allow hedge funds to avoid dual taxation, allowing offshore funds run by Tokyo-based managers to avoid being classified as having a permanent establishment in Japan.

Perhaps the best news of all, Steel Partners, which in May helped to unseat president Takayoshi Okamoto and most of the Aderans board, has won a seat on the company's board for its managing director Joshua Schechter. Clearly the cause is not lost.

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