May 7, 2025 • 41 mins
Joel Palathinkal chats with David Baeckelandt from Sumi Trust about Japan's investment scene, highlighting record-sized buyout funds. David shares his career insights and Sumi Trust's role, discussing Japanese investment trends and private market evolution. They explore entrepreneurial growth, legislative shifts, and leadership challenges in small firms. The conversation touches on the changing business approaches of Japan's next generation and their investment interests, especially in North America. The episode also covers hostile takeovers, US-Japan LPGP dynamics, and offers advice on market fit, engagement strategies, and cultural nuances for US managers entering Japan.
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(00:00):
KKR, Bain, Carlisle have all raised recordsized funds for buyouts in Japan.
And in fact, just this week there was a bigannouncement of a really interesting
development, which is a potentially hostile bidfor seven and I, which is the owner of the
(00:21):
seven Eleven chains, which are ubiquitouscertainly here in The US, but also dominant in
Japan.
That's really meaningful.
That's meaningful in a bunch of ways becausethere's been new legislation that have changed
the opportunity for foreign hostile bids.
In the past, Japan was pretty much a closedmarket.
Welcome
(00:43):
to The Investor, a podcast where I, JoelPalafinkel, your host, dives deep into the
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
(01:09):
All right.
So super excited for my guest today, DavidBakeland.
He's been, a new friend that I've gotten toknow on a deeper level.
Met him one time and I think we've met almostthree, four times together over lunch, over
dinner drinks, and just a really interestingperson.
And I think a great person that people can alsolearn from, as a role model in the asset
(01:31):
management industry.
So David Bankland works for Sumi Trust.
Sumi Trust is essentially the largest Japanesebank and asset manager in terms of AUM,
essentially for anything headquartered inJapan.
I believe David, you've referred to them aspretty much the black rock of Japan
essentially, right?
That's right.
(01:51):
And Joel, great to be here.
Great to see you.
I have enjoyed every one of our interactionsand love your energy.
So thank you for having me today and justdelighted to be part of this podcast.
Yeah, look, it's a huge honor to have you onhere.
And I think one of the hot topics that you andI are really passionate about is private
markets.
(02:11):
We've talked about technology solutions thathave worked, that have not worked.
We've talked about several service providersthat provide that data to LPs, GPs
institutions.
So I think we can go through all of that, butbefore we go that deep, why don't we learn a
little more about David?
So David, why don't you talk to us about earlyeducation, where you grew up and how you kind
(02:33):
of got into the industry and you know, kind ofhow you ended up at Sumi and then we'll just
take it from there.
Great, thanks Joel.
Yeah, so my early education, I grew up mainlyin the Midwest, mainly in the Chicago area,
Went to University of Illinois down inChampaign Urbana.
Started working on my PhD in Japanese history.
Got pulled into some business ventures as aninterpreter and translator and then translating
(02:56):
a book from Japanese to English on the Japanesestock market for a couple of my Japanese
professors.
And then from there went to a firm calledWilliam Blair, where I worked, actually went
originally for a couple of years to a Japanesebank, worked for them, and then from there to
William Blair.
Then William Blair sent me over to Tokyo and Iset up and ran an office there.
(03:20):
While they're invested in some Japanese privateequity, made a little money, thought I was
master of the universe.
I came back to The US and have gone through acouple of iterations, either working for money
managers or working for a couple of consultingfirms, Mercer and Cambridge Associates.
And today I work for Sumi Trust, as you pointedout.
(03:43):
So thank you.
Yeah, know, really exciting.
So tell us a little more about Sumi Trust, howthe organization is broken out, and then just
tell us a little bit about the ecosystem thatyou've been observing in Japan, how Japan's
evolved and now how The US counterparts areleaning in and investing in Japan or investing
(04:05):
with Japan.
Great, a lot of great points there.
So Sumi Trust itself is a predominantlyJapanese organization, although we have offices
around the globe.
Sumi Trust is publicly traded, ticker 8309,tickers in Japan are our numbers.
And the asset management part is just one ofmany parts of the bank.
(04:28):
The bank is traditionally known as a trustbank.
So it plays a role similar to both trust banksin The US.
So think of Northern Trust, etcetera, as wellas investment consultant firms such as Mercer
and Cambridge Associates in terms of acting askind of an OCIO for a lot of the pensions and
(04:54):
endowments and foundations.
And simply the trusted advisor to many of theultra high net worth individuals in Japan.
Sure.
And tell me kind of a little more about theculture.
What are some of those ultra high net worthinvestors in Japan looking for?
What are some of the type of assets, whetherthey're alternatives, whether they're the more
(05:18):
conservative type of assets like steel or realestate?
I guess how is that makeup in terms of like theevolution of that?
And then tell me a little more about like maybethe next gens, right?
Do the kids want to kind of stay involved inthe same family businesses or are they trying
to get into more impactful or tech focusedventures?
(05:41):
So lots of questions there.
So just to run through what I recall, one isthe market in Japan for investing and the
interest and appetite for investing amongJapanese individuals has been predominantly
focused on those assets that are capitalpreservation assets.
(06:06):
So of course, went through roughly threedecades of down equity markets.
And this together with the fact that Japanesefixed income yielded 9% to high single digits
when the Japanese equity market started goingdown, meant that many investors felt more
comfortable with domestic fixed income.
(06:29):
Of course, now with rates being as low as theyare in Japan and money essentially being free
to borrow.
The investors have started looking overseas.
In the last few years, there's been a number ofchanges more recently, or most recently,
earlier this year, new regulations in terms ofthe Japanese NISA accounts, which are kind of
(06:52):
like a four zero one ksIRA that is not taxedand the amount of money that can be deposited
into it, has sparked a wave of Japaneseinvesting in riskier assets such as equities.
And that means that they have lookedpredominantly offshore, especially with the yen
(07:17):
taking a slide from roughly 103 back in thebeginning of twenty twenty one down to the low
in last month or July of just about 160 yen tothe dollar.
So they've looked at riskier assets, USequities, foreign equities in general.
They've looked at investments that have highvolatility, such as small caps or mid caps in
(07:46):
The US equity market.
And they've also looked in a lesser level, moreon the institutional side to alternative
assets, just private equity, private debt,private real assets, and so on.
Can you go a little deeper, because I knowyou've done some really great research on just
the private markets and really appreciated thatanalysis and materials that you shared earlier,
(08:13):
but can you go a little deeper on the privatemarkets and just that ecosystem?
Is that being unpacked?
I guess is there a certain percentage ofventure or you don't have to specifically state
any percentages, but just kind of like, whenyou think about private equity, are you
thinking about like mid market and then, isthat also kind of inclusive of like venture and
(08:37):
then growth equity as well?
And how have you seen that appetite kind ofevolve over the time on the private market
side?
So on the private market side, private marketswere historically in Japan really driven by
corporate VCs And they dominated the market upuntil, let's say twenty years ago.
(08:59):
Roughly twenty years ago, they started todevelop a ecosystem of domestic private equity
firms, usually very small, very limited in AUM,usually just a few hundred million.
Usually very, very cautious in terms of theirinvesting approach and very savvy in terms of
(09:23):
making their investment decisions.
That has evolved.
So it's evolved in a couple of directions.
One is the influence of offshore privatemarkets, especially The US, has driven an
entrepreneurship culture, especially among theyounger generation.
So like folks 30 have a far greaterentrepreneurial bent.
(09:46):
And you can see that in the number of startupsin Japan.
And in fact, the ecosystem there is justrocketed.
So the equivalent of Silicon Valley in Japan isreally heavily clustered in the Shibuya area of
(10:07):
And that Shibuya area, is now sometimes calledBit Valley, is home to lots startups.
They're very different than maybe startups youmight see in The US.
The ecosystem, the opportunity to go public wasa much stronger direction in Japan than it has
(10:29):
been in The US.
And so a lot of these startups relied onfriends and family.
And once they got to a certain level, they didaccept outside equity.
There often wasn't a lot of ownership of sharesamong either leadership or even the rank and
certainly the rank and file.
That's that's evolved over time.
(10:51):
So now there is greater ownership and thelegislation in Japan is also moved in that
direction.
And it hasn't hurt that if you look at the,let's say roughly 40 billionaires in Japan
today, a huge number of them have all beenentrepreneurs.
So I'm sure many people are familiar with theUniqlo retail centers across the world.
(11:21):
And Yunaisan who founded that of course is anentrepreneur.
In fact, the third largest Japanese billionairefounded a company called Kience, which is the
best performing Japanese stock over the lastthirty years.
So you'll see number two slot, by the way, isMasayoshi Son, who is the founder of SoftBank
(11:43):
and probably best known to a lot of people.
A lot of these entrepreneurs, of course, have aglobal background.
Son Son, for example, having been partly raisedand educated in California and made his first
money there.
And that probably sets them apart from a lot ofthe older generation Japanese entrepreneurs and
(12:03):
investors.
Yeah.
The market for Japanese equities globally hasreally rocketed as well.
And it's hard to believe we've just in Julypassed or just this year passed the all time
high and the Nikkei, which was back in Decemberof nineteen eighty nine.
(12:26):
And we just passed that just last month.
The market has slipped a little bit since then.
But during that period of time, during thoseroughly almost forty years, thirty five years,
the market and the ecosystem in Japan hasdramatically evolved.
In the past, it was largely driven by bankssuch as ours.
(12:47):
Now alternative finances is a real factor.
And more importantly, GPs are in Japan indroves.
KKR, Bain, Carlisle have all raised recordsized funds for buyouts in Japan.
And in fact, just this week there was a bigannouncement of a really interesting
(13:11):
development, which is a potentially hostile bidfor seven and I, which is the owner of the
seven Eleven chains, which are ubiquitous,certainly here in The US, but also dominant in
Japan.
That's really meaningful.
That's meaningful in a bunch of ways becausethere's been new legislation that have changed
(13:32):
the opportunity for foreign hostile bids.
In the past, Japan was pretty much a closedmarket.
It was very difficult to make those kind ofacquisitions.
And M and A was usually not an outcome or aopportunity for entrepreneurs.
Today, it's increasingly becoming so.
Yeah.
What are some of the changes on the regulation?
(13:52):
I'm assuming it's just to make it easier forinternational entities to just go in and bid at
an American company and I guess what's drivingthat in your opinion?
There's several things it.
The regulations have come from two sourcesprimarily, the Financial Supervisory Agency or
FSA, which is the equivalent of Japan's SEC andMITI, which is the Ministry of basically the
(14:21):
governing body for all industry in Japan.
Those two entities passed and widely announcednew regulations that number one, permit hostile
bids to happen.
In the past that wasn't the case.
Yeah.
Require company boards to examine these hostilebids and accept alternative bids and force them
(14:47):
to be transparent in their decision making.
So there's a number of smaller, let's say, moretechnical elements to those regulations, but
those are really key.
That's one of the elements.
The other element that's driving this is thefact that, no surprise, I'm sure all of your
(15:08):
viewers who are familiar with Japan are awareof the demographic challenges that Japan faces
today.
What that means in practice is that themillions, literally millions of small
businesses in Japan that are not publiclytraded have a leadership crisis.
So many of the founders of these companies areretiring and literally cannot find someone to
(15:31):
take over the reins of the company.
That is driving acquisitions at a ground leveland it's also providing, let's say, air cover
for the change that was required and necessaryfor Japan to accept hostile bids from overseas.
(15:53):
And real quick, David, so just to unpack that alittle bit.
So when you say that they can't find somebodyto operate the company, is it just because the
operator or the owner is just kind of retiringor it's just they just have issues, they're
just having operational issues trying to findthe right leadership or can you just kind of
unpack that a little more?
Yeah, no, it's real simple.
(16:16):
There was a great New York Times article onthis, let's say in early twenty twenty three,
I'll find it and send it to you as follow-up.
But what that article shared and what is, let'ssay, very widely known in Japan is that many
children of founders of small companies don'twant to take over the reins of those companies.
(16:37):
And many individuals in Japan that are workingat these companies don't have a desire to take
on the burden and the obligations that comewith running those companies.
So, and these are not companies that are losingmoney.
These are companies that are profitable.
So what's happening there is oftentimes thefounder who is 70 or 80 or sometimes even
(17:00):
older, eventually says, I can't do thisanymore.
And closes the gates, closes the company up andthen the company seems to exist.
So these companies are oftentimes outside ofthe main metro areas or they're in, let's say
(17:21):
kind of tier two or tier three cities.
The traditional supply system in Japan hasrelied upon these companies that were able to
provide first rate craftsmanship in whatevermanufacturing area they were in together with,
let's say, reduced costs, but just in timedelivery.
(17:41):
And that combination of course is difficult tocompete with, but it's certainly difficult to
manage unless you're already familiar with thebusiness.
Yeah, no, that's helpful.
Yeah, I mean, that's a good point.
And then just kind of to piggyback off of that,where do you see kind of the next gen setting?
They don't want to run their own family'sbusiness or just take on a legacy business.
(18:04):
It sounds like I'm just assuming there's just alot of entrepreneurial spirit there where
people are just going out building theirventures.
It seems like there's the community and theinfrastructure now to kind of encourage that as
well.
And now there's a lot of programs in place sothat people can you know, work with Southeast
Asian markets as well, right?
(18:24):
So I'm assuming that's what it is.
I mean, that's kind of where the youth isheading, but is that a fair depiction or
assumption?
Yeah, I'd say the youth today, the ones thatI've encountered, first of all, they're usually
globally educated, right?
For the most part educated either in Europe.
So most of them go out, leave the country to goto college and maybe do their MBA or master's
(18:49):
or something like that.
That's right.
They'll get their undergrad in Japan.
They'll get their master's overseas.
A lot of them, Australia, for example, has awork study program where visa free they can, or
not visa free, but essentially without much redtape, Japanese individuals can go to Australia,
learn the language, learn English, of course,and pick up some entrepreneurial beds.
(19:14):
And of course, The US and The UK and otherparts of Europe are still strong targets.
But these individuals come back, they seethings that spark their interest.
And then they see ways to mold their ideas intosomething that's truly Japanese.
And so many of them are really focused on thedomestic market.
(19:38):
I mean, Japan is still the world's thirdfourthlargest economy in the world, which means that
there is a huge domestic opportunity for manyof these young entrepreneurs.
The second thing is funding, of course, hasbecome more widespread.
Unlike in The US, there wasn't really a VCecosystem to encourage those young
(20:00):
entrepreneurs.
And there also wasn't the, let's say regulatoryframework to allow them to borrow or to receive
investments that weren't really bank driven.
For example, today, entrepreneurs in The US canrely on safe funding to get themselves start up
(20:21):
and basically have kind of some sorts ofcapital that doesn't overburden them with debt.
Japan has copied that.
They have a thing called J Kiss, J K I S S,which is basically a very, very similar to SAFE
kind of structure, which means that thepaperwork and regulatory framework just are
(20:50):
much easier for entrepreneurs to adapt to.
There's also a number of organizations in Japannow that are really entrepreneurial supporting
and enable them to tap into things thatentrepreneurs here in The US would take for
granted.
For example, knowing who the possible VCs arethat might invest in their firm, having some
(21:15):
idea of what the criteria are, having some ideaof, let's say, templates for term sheets and so
on and so forth.
That now all exists.
Of course, it's a rapidly reinforcing ecosystemwhen you have those things in place.
And so the velocity of money floating around inthis area is just incredible.
(21:41):
I mean, if you look at the statistics that Ithink you were referring to some of the Bain
and Company report on Japanese private equitythat came out earlier this year.
I mean, you can look at just, let's say tenyears ago compared to today, it's a multiple of
more than 10 terms of number of opportunities.
(22:01):
So it's really the place to be right now forprivate equity.
Tell me about some of the hot markets thatyou're seeing in the entrepreneurial, maybe VC
ecosystem is, you know, are you know, when youwhen you think about different markets, I know
Korea has a huge gaming ecosystem.
You know, there was a fund manager thatgraduated from our fund accelerator that lives
(22:24):
in Singapore and only invest in Southeast Asianfintech.
So with Japan, what are some of the really hotmarkets that they're really concentrated on?
Right.
And you see some trends based on geography, butwe'd love to just learn a little more about you
know, the startup ecosystem.
Are we seeing a lot of AI, you know, Gen AIcompanies?
(22:47):
Are we seeing a lot of infrastructure companiescome about?
You know, maybe you can just give us some macrosignals in terms of where the tech ecosystem is
going.
Maybe from early stage all the way out to PE.
Good question.
So in terms of offshore geographies, Japan hastraditionally looked at, let's say, kind of two
(23:09):
big economies, no surprise China and US.
But over time, just like a lot of other places,India is hot right now and Japan and India have
a long positive relationship.
And that is in part driven by currentgeopolitical issues, but also driven by a
(23:31):
number of other things.
Japan is a heavily Buddhist country andBuddhism of course began in India.
That is one of the, let's say, kind of the sameway that the West looks to Greece as the origin
of thought and philosophy, Japan looks toIndia.
So I'd say India is top of mind.
(23:53):
Vietnam is another area that has a lot ofinterest.
Thailand has also generated a lot of interestbecause of other shared interests and
commonalities that tie in.
Also the, let's say, the ecosystem ofentrepreneurs or individuals that have learned
(24:15):
and studied in Japan from Vietnam, India,Thailand, The Philippines.
Those individuals, of course, bring backlanguage and cultural familiarity with Japan,
as well as some practices and contexts.
That has helped fuel the growth in, let's say,kind of offshore interest that is not directed
to either China or The US.
(24:36):
In terms of where those different ecosystemskind of play, Japan in terms of growth, once a
company gets to a certain size, the domesticmarket is saturated and they need to look
overseas.
So manufacturing of course has shifted justlike many others have away from China and to
(25:01):
Southeast Asia or India.
Others such as those looking for bigger marketsto tackle have looked of course at Western
Europe and US.
And those that have in terms of buyouts andthat level of private markets interest, that's
(25:24):
still largely focused on North America,especially The US.
And again, that's simply because theopportunity set here is so huge.
I mean, if you look at the amount of dollarsdeployed to the private markets in The US,
it's, I don't know, something like 60% plus ofwhat the global number is.
(25:47):
So that alone means that Japan will always lookto The US in some way, shape or form.
No, it's exciting.
I mean, it was really interesting to hear aboutseven Eleven and why that was a hostile
takeover at Target.
Guess, well, you know, and this could just bepublic information.
What are some other notable?
Are you aware of any other just interestinghostile takeovers and and maybe your thoughts
(26:12):
on like why those happen?
I mean, seven Eleven seems like it makes sense.
I mean, they're like a global brand and youknow, no matter what people always, I just went
to seven Eleven when I went to Fort Lauderdaleand it was great.
Everything you need is there, right?
I mean, So it's just kind of an all aroundconvenience store.
They got food and I even saw them, I think whenwe went to Dubai.
(26:32):
So it's definitely like a global brand.
So it's a massive opportunity.
What are some other takeovers that you thoughtwere interesting if you have any?
And then maybe some that you think could beinteresting.
Like I think like Shake Shack is something thatwe're seeing as a crazy global phenomenon,
right?
Any country you go to now, there's a shakeshack.
So I don't know the background between, youknow, who owns a lot of these conglomerates and
(26:57):
a lot of them I feel are rolled up into somelarger family holding company.
I always joke around with our buddy Amirbecause he loves that.
He's probably gonna watch this soon, butthere's that it's off the top of my head, but
there's this kind of Thai place that he lovesgoing to Wagamami.
(27:18):
I think that's what it is.
He loves going to that place.
And I actually was interested because Iactually Googled the restaurant and it's part
of like a larger massive conglomerate.
You know, just any reactions to what I'm sayingor any kind of thoughts around just kind of
maybe the next hostel takeover or justsomething you've seen in the news recently.
(27:41):
So great points.
First of I love Wakamama as well, which is aJapanese term that kind of means like kind of
playfully selfish is maybe the best way to putit.
It's selfish with some nuances.
But anyhow, leaving that aside, in terms ofhostile takeovers, the great thing about the
seven and I takeover, there have been a fewhostile takeovers in Japan.
(28:05):
Daichi Life made a hostile takeover of kind ofthe equivalent of a four zero one provider.
That was like twelve months ago.
And that was interesting because it happened inJapan and because it happened amongst Japanese
entities.
But the seven and I hostile takeover is kind ofas Nicholas Smith over at CLSA termed it just a
(28:29):
couple days ago.
It's kind of the barbarians at the gate momentfor Japan.
You're familiar with that great book that cameout years ago about RGR Nabisco.
And this is really important because if thisworks, and so far the Kushtar folks are
following the guidelines very religiously andso are the folks.
(28:54):
People forget, Seven and I has a chairman ofthe board that is actually an American, Stephen
Dacus, who was head of Walmart Japan, he'sretired.
So he's familiar with Japan, he's familiar withhow things are done in the West.
So I would imagine this will be the templatethat many other Japanese companies will then be
(29:15):
expected to follow going forward for anyhostile bids.
But this one is a big one and people outside ofJapan may not realize this, but the other
likely players to be involved in this besides,let's say non Japanese private equity firms are
probably the telecom companies.
(29:35):
KDDI and NTT have long looked at theconvenience stores as great distribution
channels for them and great ways to offsettheir revenue stream.
So you'll probably see more of that happen.
And certainly, Couche Tard, which their marketcap right now is just under 60,000,000,000 US.
(29:59):
And if they take out seven and I at the 40%premium to Monday's close, which was I think
the idea, then that will make them roughlyequal in size to each other in terms of market
gap.
So this could be, and just for the record, theseven Elevens here in The US can't even hold a
(30:20):
candle to the seven Elevens in Japan.
This is not cultural snobbery on my part.
This is simply when you go to the seven elevensin Japan, the food quality is off the charts,
the service is off the charts, the cleanlinessis typically in line with the high standards
that Japanese have come to expect andforeigners visiting Japan have loved.
(30:42):
And so you'll see if that happens and thatlevel of, let's say, attention to detail spills
over outside of Japan, then this will be agreat win for pretty much everyone.
Anyhow, so it'll be interesting to say, sowhere will future hostile takeovers happen?
(31:04):
It wasn't a hostile takeover, but earlier thisyear, you're probably aware that several
private equity firms took private Toshiba.
And there's a number of other companies thatlike Toshiba may have reached their limit in
terms of business development in Japan andtheir expansion overseas and really need to be
taken to another ecosystem or another level ofmanagement in order to continue to And I would
(31:31):
think, since Bain, Carlyle, KKR and a bunch ofothers have raised record size buyout funds for
Japan, we will see a slew of these hostiletakeovers and bids going forward.
Especially because if you look at Japan,publicly traded companies or private companies,
they're being exchanged, bought or sold atEBITDA multiples that are half, half those in
(31:57):
The US.
So if and this is despite having great profitsand very, very slim and efficient operating
systems.
I think you'll see a large number of thesehappen over the next several years as this
kicks in.
(32:18):
Yeah, know that's really exciting and I justthink there's a lot of energy and momentum
happening in that direction.
What are some of the challenges that I thinkneed to be addressed with like just US and
Japan, you know, LPGP relationships and andalso kind of what are what are people looking
(32:40):
for in managers as they're kind of lookingacross both both seas, right?
Like when US Investors are trying to get accessto Japanese, you know, alternatives, what what
are some things that they should maybe, youknow, consider or look at and then same thing
vice versa?
So in terms of LPGP relationships and any kindof relationships cross border, I mean, very
(33:04):
first thing is cultural misunderstandings,right?
There are certain things that are, There arecertain ways of approaching things that
Japanese take that may strike Americans as slowmoving.
But for Japanese, after having been throughthree decades of difficult times, they are
(33:29):
cautious, needless to say, and they're notlikely to pull the trigger at the first
opportunity.
So there's a certain risk averseness that theJapanese take to all business transactions.
And that means that any US GPs or anybodythat's trying to sell anything in Japan or try
(33:50):
to strike a relationship with a Japanese entitysimply has to be mindful that it will take some
time for them to get comfortable with you.
And part of that is just being aware of whatthose cultural nuances are.
And the other part is recognizing that for theJapanese, my wife is Chinese.
(34:11):
And so the Chinese and the Japanese whilehaving some cultural similarities are in many
ways dramatically different.
Chinese will often strike deals at a handshake,kind of like Americans would.
Japanese will take a long time to getcomfortable with you.
And the little tiny things really matter to theJapanese.
(34:35):
If you submit a document and it has onespelling error, they will take that as a sign
that you don't really pay attention to details,number one.
And if you can't pay attention to small thingslike that, how likely are you to pay attention
to the big things?
(34:55):
So there's many other examples like that.
So I would suggest, first of all, there's ahuge opportunity in Japan for US Managers,
whether they're on the private side or thepublic side.
But it will take a long time for you to developthat relationship.
As long as you're mindful of those culturallandmines that exist between any two cultures,
(35:19):
but are especially stark between Japan and therest of the world, you will be successful.
So just like anywhere, enthusiasm, earnestness,and a good product go a long way to making the
sale.
No, that's great.
I mean, I think really, definitely when youthink about product market fit, just helping
(35:43):
people understand the product.
I feel like a lot of great managers that havegreat access, great deals, but they just can't
close capital.
And I think the biggest issue is theirpositioning or just storytelling.
I mean, to understand what their product is,you really need that one liner to help get the
(36:06):
message across.
And I think if it's so complicated or if yourmessaging is like two, you know, three to four
sentences long, you lose them after like thethree to four words in the beginning of the
sentence.
So I think, you know, people that can storytell better, they probably have, you know, at
benchmark returns probably will do better thanpeople that are claiming they have amazing
(36:29):
outsized returns or outsized opportunities.
It just can't get the message across.
I feel like it's the communication plus havingthe great product and in this market it's just
even more difficult than ever to get peopleover the line, especially when you're dealing
with cross border entities trying to work witheach other.
(36:50):
It's really, it takes time.
Those in your audience who may be thinking ofgoing to Japan to either raise capital or to
find opportunities, it's just think of whatsells well here.
And if it's a high quality offering that youhave, the Japanese will be interested.
(37:15):
I mean, Japanese are perennial students, right?
They're constantly trying to learn more,improve themselves, study what best practices
are in The US and elsewhere.
And so they're very aware of the outside world.
And they're looking for things to be customcrafted so that they fit the unique cultural
(37:37):
parameters that Japan has.
Again, strongly encourage everyone who'swatching this podcast to explore Japan.
And I would just say, make sure you do yourhomework.
Yeah, no, that's really helpful.
What other advice would you give for GPs tryingto engage with LPs?
(38:00):
I know you talked about kind of just makingsure that your understanding of their their
pace in terms of like the diligence.
What are some maybe just common mistakes thatyou've seen that managers have made beyond just
kind of like being patient?
What are some other just cultural things thatwe should think about?
Cultural things.
(38:20):
Well, know, it's speaking of my own personalexperience and having represented a US firm in
Japan and cringed every time my colleagues fromThe US would come over and make cultural
mistakes.
And some of these are simple ones, like forexample, business cards.
(38:42):
Everybody has seen probably the perennialexchange of business cards between Japanese.
That's a really important part of the, let'ssay getting to know you, right?
So
some of the next gen people that don't carrybusiness cards around, they're like, hey, I
don't have a card, just check me out onLinkedIn.
(39:02):
I guess that's kind of seen as maybeunprofessional or unprepared.
Every one of those little differences will makeit that much more difficult to develop a
relationship.
But I'm not talking about just having businesscards, I'm talking about, for example, handing
it correctly, respectfully receiving it, notdishing them out like cards in a game of poker,
(39:29):
and not writing on the business card thatyou've received from somebody.
Simple things like that.
Other things would be, no surprise maybe, notdisplaying strong emotion or anger, slamming
tables, trying to do the quick sell as youwould in The US, right?
(39:49):
That just won't work.
That'll just turn people off.
And then last but not least, I mean, thissounds self evident, but even though many
people in Japan, especially the youngergeneration speak English to a certain level,
just like anywhere, they all prefer to seethings written or said in their own language.
(40:09):
It just makes sure that they can check and makesure that they understand what is this meeting
about.
So to the extent that you can, let's say,acclimate your marketing materials for Japan,
simple things like using what the Japanese calla, a corporate outline, which is like kind of a
(40:31):
one pager on who your firm is, but obviously inJapanese and following those kind of
guidelines, those will go a long way towardsbuilding the bridges that you need to close
business with the Japanese.
Yeah, no, that's really helpful for well,David, you know, really appreciate all this
wisdom and guidance and just the deeper insightinto just that ecosystem of Japan and just, you
(40:56):
know, helping us understand how to bridge thatrelationship much closer and appreciate the
friendship and excited to catch up the nexttime I see you.
I think I'll actually see you tomorrow.
So excited for all of the exciting thingsahead.
And again, thank you so much for your time andyour insight.
Joel, thank you for having me.
(41:17):
Delighted to be here.
Delighted to enjoy some of the culturalintroductions you've made to me, and not just
personal, but culinary as well.
Looking forward to seeing you tomorrow as wellas in the future.
Thank you.
Take care.
Thank you.
I really appreciate it.
See
KKR, Bain, Carlisle have all raised recordsized funds for buyouts in Japan.
And in fact, just this week there was a bigannouncement of a really interesting
development, which is a potentially hostile bidfor seven and I, which is the owner of the
(00:21):
seven Eleven chains, which are ubiquitouscertainly here in The US, but also dominant in
Japan.
That's really meaningful.
That's meaningful in a bunch of ways becausethere's been new legislation that have changed
the opportunity for foreign hostile bids.
In the past, Japan was pretty much a closedmarket.
Welcome
(00:43):
to The Investor, a podcast where I, JoelPalafinkel, your host, dives deep into the
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
(01:09):
All right.
So super excited for my guest today, DavidBakeland.
He's been, a new friend that I've gotten toknow on a deeper level.
Met him one time and I think we've met almostthree, four times together over lunch, over
dinner drinks, and just a really interestingperson.
And I think a great person that people can alsolearn from, as a role model in the asset
(01:31):
management industry.
So David Bankland works for Sumi Trust.
Sumi Trust is essentially the largest Japanesebank and asset manager in terms of AUM,
essentially for anything headquartered inJapan.
I believe David, you've referred to them aspretty much the black rock of Japan
essentially, right?
That's right.
(01:51):
And Joel, great to be here.
Great to see you.
I have enjoyed every one of our interactionsand love your energy.
So thank you for having me today and justdelighted to be part of this podcast.
Yeah, look, it's a huge honor to have you onhere.
And I think one of the hot topics that you andI are really passionate about is private
markets.
(02:11):
We've talked about technology solutions thathave worked, that have not worked.
We've talked about several service providersthat provide that data to LPs, GPs
institutions.
So I think we can go through all of that, butbefore we go that deep, why don't we learn a
little more about David?
So David, why don't you talk to us about earlyeducation, where you grew up and how you kind
(02:33):
of got into the industry and you know, kind ofhow you ended up at Sumi and then we'll just
take it from there.
Great, thanks Joel.
Yeah, so my early education, I grew up mainlyin the Midwest, mainly in the Chicago area,
Went to University of Illinois down inChampaign Urbana.
Started working on my PhD in Japanese history.
Got pulled into some business ventures as aninterpreter and translator and then translating
(02:56):
a book from Japanese to English on the Japanesestock market for a couple of my Japanese
professors.
And then from there went to a firm calledWilliam Blair, where I worked, actually went
originally for a couple of years to a Japanesebank, worked for them, and then from there to
William Blair.
Then William Blair sent me over to Tokyo and Iset up and ran an office there.
(03:20):
While they're invested in some Japanese privateequity, made a little money, thought I was
master of the universe.
I came back to The US and have gone through acouple of iterations, either working for money
managers or working for a couple of consultingfirms, Mercer and Cambridge Associates.
And today I work for Sumi Trust, as you pointedout.
(03:43):
So thank you.
Yeah, know, really exciting.
So tell us a little more about Sumi Trust, howthe organization is broken out, and then just
tell us a little bit about the ecosystem thatyou've been observing in Japan, how Japan's
evolved and now how The US counterparts areleaning in and investing in Japan or investing
(04:05):
with Japan.
Great, a lot of great points there.
So Sumi Trust itself is a predominantlyJapanese organization, although we have offices
around the globe.
Sumi Trust is publicly traded, ticker 8309,tickers in Japan are our numbers.
And the asset management part is just one ofmany parts of the bank.
(04:28):
The bank is traditionally known as a trustbank.
So it plays a role similar to both trust banksin The US.
So think of Northern Trust, etcetera, as wellas investment consultant firms such as Mercer
and Cambridge Associates in terms of acting askind of an OCIO for a lot of the pensions and
(04:54):
endowments and foundations.
And simply the trusted advisor to many of theultra high net worth individuals in Japan.
Sure.
And tell me kind of a little more about theculture.
What are some of those ultra high net worthinvestors in Japan looking for?
What are some of the type of assets, whetherthey're alternatives, whether they're the more
(05:18):
conservative type of assets like steel or realestate?
I guess how is that makeup in terms of like theevolution of that?
And then tell me a little more about like maybethe next gens, right?
Do the kids want to kind of stay involved inthe same family businesses or are they trying
to get into more impactful or tech focusedventures?
(05:41):
So lots of questions there.
So just to run through what I recall, one isthe market in Japan for investing and the
interest and appetite for investing amongJapanese individuals has been predominantly
focused on those assets that are capitalpreservation assets.
(06:06):
So of course, went through roughly threedecades of down equity markets.
And this together with the fact that Japanesefixed income yielded 9% to high single digits
when the Japanese equity market started goingdown, meant that many investors felt more
comfortable with domestic fixed income.
(06:29):
Of course, now with rates being as low as theyare in Japan and money essentially being free
to borrow.
The investors have started looking overseas.
In the last few years, there's been a number ofchanges more recently, or most recently,
earlier this year, new regulations in terms ofthe Japanese NISA accounts, which are kind of
(06:52):
like a four zero one ksIRA that is not taxedand the amount of money that can be deposited
into it, has sparked a wave of Japaneseinvesting in riskier assets such as equities.
And that means that they have lookedpredominantly offshore, especially with the yen
(07:17):
taking a slide from roughly 103 back in thebeginning of twenty twenty one down to the low
in last month or July of just about 160 yen tothe dollar.
So they've looked at riskier assets, USequities, foreign equities in general.
They've looked at investments that have highvolatility, such as small caps or mid caps in
(07:46):
The US equity market.
And they've also looked in a lesser level, moreon the institutional side to alternative
assets, just private equity, private debt,private real assets, and so on.
Can you go a little deeper, because I knowyou've done some really great research on just
the private markets and really appreciated thatanalysis and materials that you shared earlier,
(08:13):
but can you go a little deeper on the privatemarkets and just that ecosystem?
Is that being unpacked?
I guess is there a certain percentage ofventure or you don't have to specifically state
any percentages, but just kind of like, whenyou think about private equity, are you
thinking about like mid market and then, isthat also kind of inclusive of like venture and
(08:37):
then growth equity as well?
And how have you seen that appetite kind ofevolve over the time on the private market
side?
So on the private market side, private marketswere historically in Japan really driven by
corporate VCs And they dominated the market upuntil, let's say twenty years ago.
(08:59):
Roughly twenty years ago, they started todevelop a ecosystem of domestic private equity
firms, usually very small, very limited in AUM,usually just a few hundred million.
Usually very, very cautious in terms of theirinvesting approach and very savvy in terms of
(09:23):
making their investment decisions.
That has evolved.
So it's evolved in a couple of directions.
One is the influence of offshore privatemarkets, especially The US, has driven an
entrepreneurship culture, especially among theyounger generation.
So like folks 30 have a far greaterentrepreneurial bent.
(09:46):
And you can see that in the number of startupsin Japan.
And in fact, the ecosystem there is justrocketed.
So the equivalent of Silicon Valley in Japan isreally heavily clustered in the Shibuya area of
(10:07):
And that Shibuya area, is now sometimes calledBit Valley, is home to lots startups.
They're very different than maybe startups youmight see in The US.
The ecosystem, the opportunity to go public wasa much stronger direction in Japan than it has
(10:29):
been in The US.
And so a lot of these startups relied onfriends and family.
And once they got to a certain level, they didaccept outside equity.
There often wasn't a lot of ownership of sharesamong either leadership or even the rank and
certainly the rank and file.
That's that's evolved over time.
(10:51):
So now there is greater ownership and thelegislation in Japan is also moved in that
direction.
And it hasn't hurt that if you look at the,let's say roughly 40 billionaires in Japan
today, a huge number of them have all beenentrepreneurs.
So I'm sure many people are familiar with theUniqlo retail centers across the world.
(11:21):
And Yunaisan who founded that of course is anentrepreneur.
In fact, the third largest Japanese billionairefounded a company called Kience, which is the
best performing Japanese stock over the lastthirty years.
So you'll see number two slot, by the way, isMasayoshi Son, who is the founder of SoftBank
(11:43):
and probably best known to a lot of people.
A lot of these entrepreneurs, of course, have aglobal background.
Son Son, for example, having been partly raisedand educated in California and made his first
money there.
And that probably sets them apart from a lot ofthe older generation Japanese entrepreneurs and
(12:03):
investors.
Yeah.
The market for Japanese equities globally hasreally rocketed as well.
And it's hard to believe we've just in Julypassed or just this year passed the all time
high and the Nikkei, which was back in Decemberof nineteen eighty nine.
(12:26):
And we just passed that just last month.
The market has slipped a little bit since then.
But during that period of time, during thoseroughly almost forty years, thirty five years,
the market and the ecosystem in Japan hasdramatically evolved.
In the past, it was largely driven by bankssuch as ours.
(12:47):
Now alternative finances is a real factor.
And more importantly, GPs are in Japan indroves.
KKR, Bain, Carlisle have all raised recordsized funds for buyouts in Japan.
And in fact, just this week there was a bigannouncement of a really interesting
(13:11):
development, which is a potentially hostile bidfor seven and I, which is the owner of the
seven Eleven chains, which are ubiquitous,certainly here in The US, but also dominant in
Japan.
That's really meaningful.
That's meaningful in a bunch of ways becausethere's been new legislation that have changed
(13:32):
the opportunity for foreign hostile bids.
In the past, Japan was pretty much a closedmarket.
It was very difficult to make those kind ofacquisitions.
And M and A was usually not an outcome or aopportunity for entrepreneurs.
Today, it's increasingly becoming so.
Yeah.
What are some of the changes on the regulation?
(13:52):
I'm assuming it's just to make it easier forinternational entities to just go in and bid at
an American company and I guess what's drivingthat in your opinion?
There's several things it.
The regulations have come from two sourcesprimarily, the Financial Supervisory Agency or
FSA, which is the equivalent of Japan's SEC andMITI, which is the Ministry of basically the
(14:21):
governing body for all industry in Japan.
Those two entities passed and widely announcednew regulations that number one, permit hostile
bids to happen.
In the past that wasn't the case.
Yeah.
Require company boards to examine these hostilebids and accept alternative bids and force them
(14:47):
to be transparent in their decision making.
So there's a number of smaller, let's say, moretechnical elements to those regulations, but
those are really key.
That's one of the elements.
The other element that's driving this is thefact that, no surprise, I'm sure all of your
(15:08):
viewers who are familiar with Japan are awareof the demographic challenges that Japan faces
today.
What that means in practice is that themillions, literally millions of small
businesses in Japan that are not publiclytraded have a leadership crisis.
So many of the founders of these companies areretiring and literally cannot find someone to
(15:31):
take over the reins of the company.
That is driving acquisitions at a ground leveland it's also providing, let's say, air cover
for the change that was required and necessaryfor Japan to accept hostile bids from overseas.
(15:53):
And real quick, David, so just to unpack that alittle bit.
So when you say that they can't find somebodyto operate the company, is it just because the
operator or the owner is just kind of retiringor it's just they just have issues, they're
just having operational issues trying to findthe right leadership or can you just kind of
unpack that a little more?
Yeah, no, it's real simple.
(16:16):
There was a great New York Times article onthis, let's say in early twenty twenty three,
I'll find it and send it to you as follow-up.
But what that article shared and what is, let'ssay, very widely known in Japan is that many
children of founders of small companies don'twant to take over the reins of those companies.
(16:37):
And many individuals in Japan that are workingat these companies don't have a desire to take
on the burden and the obligations that comewith running those companies.
So, and these are not companies that are losingmoney.
These are companies that are profitable.
So what's happening there is oftentimes thefounder who is 70 or 80 or sometimes even
(17:00):
older, eventually says, I can't do thisanymore.
And closes the gates, closes the company up andthen the company seems to exist.
So these companies are oftentimes outside ofthe main metro areas or they're in, let's say
(17:21):
kind of tier two or tier three cities.
The traditional supply system in Japan hasrelied upon these companies that were able to
provide first rate craftsmanship in whatevermanufacturing area they were in together with,
let's say, reduced costs, but just in timedelivery.
(17:41):
And that combination of course is difficult tocompete with, but it's certainly difficult to
manage unless you're already familiar with thebusiness.
Yeah, no, that's helpful.
Yeah, I mean, that's a good point.
And then just kind of to piggyback off of that,where do you see kind of the next gen setting?
They don't want to run their own family'sbusiness or just take on a legacy business.
(18:04):
It sounds like I'm just assuming there's just alot of entrepreneurial spirit there where
people are just going out building theirventures.
It seems like there's the community and theinfrastructure now to kind of encourage that as
well.
And now there's a lot of programs in place sothat people can you know, work with Southeast
Asian markets as well, right?
(18:24):
So I'm assuming that's what it is.
I mean, that's kind of where the youth isheading, but is that a fair depiction or
assumption?
Yeah, I'd say the youth today, the ones thatI've encountered, first of all, they're usually
globally educated, right?
For the most part educated either in Europe.
So most of them go out, leave the country to goto college and maybe do their MBA or master's
(18:49):
or something like that.
That's right.
They'll get their undergrad in Japan.
They'll get their master's overseas.
A lot of them, Australia, for example, has awork study program where visa free they can, or
not visa free, but essentially without much redtape, Japanese individuals can go to Australia,
learn the language, learn English, of course,and pick up some entrepreneurial beds.
(19:14):
And of course, The US and The UK and otherparts of Europe are still strong targets.
But these individuals come back, they seethings that spark their interest.
And then they see ways to mold their ideas intosomething that's truly Japanese.
And so many of them are really focused on thedomestic market.
(19:38):
I mean, Japan is still the world's thirdfourthlargest economy in the world, which means that
there is a huge domestic opportunity for manyof these young entrepreneurs.
The second thing is funding, of course, hasbecome more widespread.
Unlike in The US, there wasn't really a VCecosystem to encourage those young
(20:00):
entrepreneurs.
And there also wasn't the, let's say regulatoryframework to allow them to borrow or to receive
investments that weren't really bank driven.
For example, today, entrepreneurs in The US canrely on safe funding to get themselves start up
(20:21):
and basically have kind of some sorts ofcapital that doesn't overburden them with debt.
Japan has copied that.
They have a thing called J Kiss, J K I S S,which is basically a very, very similar to SAFE
kind of structure, which means that thepaperwork and regulatory framework just are
(20:50):
much easier for entrepreneurs to adapt to.
There's also a number of organizations in Japannow that are really entrepreneurial supporting
and enable them to tap into things thatentrepreneurs here in The US would take for
granted.
For example, knowing who the possible VCs arethat might invest in their firm, having some
(21:15):
idea of what the criteria are, having some ideaof, let's say, templates for term sheets and so
on and so forth.
That now all exists.
Of course, it's a rapidly reinforcing ecosystemwhen you have those things in place.
And so the velocity of money floating around inthis area is just incredible.
(21:41):
I mean, if you look at the statistics that Ithink you were referring to some of the Bain
and Company report on Japanese private equitythat came out earlier this year.
I mean, you can look at just, let's say tenyears ago compared to today, it's a multiple of
more than 10 terms of number of opportunities.
(22:01):
So it's really the place to be right now forprivate equity.
Tell me about some of the hot markets thatyou're seeing in the entrepreneurial, maybe VC
ecosystem is, you know, are you know, when youwhen you think about different markets, I know
Korea has a huge gaming ecosystem.
You know, there was a fund manager thatgraduated from our fund accelerator that lives
(22:24):
in Singapore and only invest in Southeast Asianfintech.
So with Japan, what are some of the really hotmarkets that they're really concentrated on?
Right.
And you see some trends based on geography, butwe'd love to just learn a little more about you
know, the startup ecosystem.
Are we seeing a lot of AI, you know, Gen AIcompanies?
(22:47):
Are we seeing a lot of infrastructure companiescome about?
You know, maybe you can just give us some macrosignals in terms of where the tech ecosystem is
going.
Maybe from early stage all the way out to PE.
Good question.
So in terms of offshore geographies, Japan hastraditionally looked at, let's say, kind of two
(23:09):
big economies, no surprise China and US.
But over time, just like a lot of other places,India is hot right now and Japan and India have
a long positive relationship.
And that is in part driven by currentgeopolitical issues, but also driven by a
(23:31):
number of other things.
Japan is a heavily Buddhist country andBuddhism of course began in India.
That is one of the, let's say, kind of the sameway that the West looks to Greece as the origin
of thought and philosophy, Japan looks toIndia.
So I'd say India is top of mind.
(23:53):
Vietnam is another area that has a lot ofinterest.
Thailand has also generated a lot of interestbecause of other shared interests and
commonalities that tie in.
Also the, let's say, the ecosystem ofentrepreneurs or individuals that have learned
(24:15):
and studied in Japan from Vietnam, India,Thailand, The Philippines.
Those individuals, of course, bring backlanguage and cultural familiarity with Japan,
as well as some practices and contexts.
That has helped fuel the growth in, let's say,kind of offshore interest that is not directed
to either China or The US.
(24:36):
In terms of where those different ecosystemskind of play, Japan in terms of growth, once a
company gets to a certain size, the domesticmarket is saturated and they need to look
overseas.
So manufacturing of course has shifted justlike many others have away from China and to
(25:01):
Southeast Asia or India.
Others such as those looking for bigger marketsto tackle have looked of course at Western
Europe and US.
And those that have in terms of buyouts andthat level of private markets interest, that's
(25:24):
still largely focused on North America,especially The US.
And again, that's simply because theopportunity set here is so huge.
I mean, if you look at the amount of dollarsdeployed to the private markets in The US,
it's, I don't know, something like 60% plus ofwhat the global number is.
(25:47):
So that alone means that Japan will always lookto The US in some way, shape or form.
No, it's exciting.
I mean, it was really interesting to hear aboutseven Eleven and why that was a hostile
takeover at Target.
Guess, well, you know, and this could just bepublic information.
What are some other notable?
Are you aware of any other just interestinghostile takeovers and and maybe your thoughts
(26:12):
on like why those happen?
I mean, seven Eleven seems like it makes sense.
I mean, they're like a global brand and youknow, no matter what people always, I just went
to seven Eleven when I went to Fort Lauderdaleand it was great.
Everything you need is there, right?
I mean, So it's just kind of an all aroundconvenience store.
They got food and I even saw them, I think whenwe went to Dubai.
(26:32):
So it's definitely like a global brand.
So it's a massive opportunity.
What are some other takeovers that you thoughtwere interesting if you have any?
And then maybe some that you think could beinteresting.
Like I think like Shake Shack is something thatwe're seeing as a crazy global phenomenon,
right?
Any country you go to now, there's a shakeshack.
So I don't know the background between, youknow, who owns a lot of these conglomerates and
(26:57):
a lot of them I feel are rolled up into somelarger family holding company.
I always joke around with our buddy Amirbecause he loves that.
He's probably gonna watch this soon, butthere's that it's off the top of my head, but
there's this kind of Thai place that he lovesgoing to Wagamami.
(27:18):
I think that's what it is.
He loves going to that place.
And I actually was interested because Iactually Googled the restaurant and it's part
of like a larger massive conglomerate.
You know, just any reactions to what I'm sayingor any kind of thoughts around just kind of
maybe the next hostel takeover or justsomething you've seen in the news recently.
(27:41):
So great points.
First of I love Wakamama as well, which is aJapanese term that kind of means like kind of
playfully selfish is maybe the best way to putit.
It's selfish with some nuances.
But anyhow, leaving that aside, in terms ofhostile takeovers, the great thing about the
seven and I takeover, there have been a fewhostile takeovers in Japan.
(28:05):
Daichi Life made a hostile takeover of kind ofthe equivalent of a four zero one provider.
That was like twelve months ago.
And that was interesting because it happened inJapan and because it happened amongst Japanese
entities.
But the seven and I hostile takeover is kind ofas Nicholas Smith over at CLSA termed it just a
(28:29):
couple days ago.
It's kind of the barbarians at the gate momentfor Japan.
You're familiar with that great book that cameout years ago about RGR Nabisco.
And this is really important because if thisworks, and so far the Kushtar folks are
following the guidelines very religiously andso are the folks.
(28:54):
People forget, Seven and I has a chairman ofthe board that is actually an American, Stephen
Dacus, who was head of Walmart Japan, he'sretired.
So he's familiar with Japan, he's familiar withhow things are done in the West.
So I would imagine this will be the templatethat many other Japanese companies will then be
(29:15):
expected to follow going forward for anyhostile bids.
But this one is a big one and people outside ofJapan may not realize this, but the other
likely players to be involved in this besides,let's say non Japanese private equity firms are
probably the telecom companies.
(29:35):
KDDI and NTT have long looked at theconvenience stores as great distribution
channels for them and great ways to offsettheir revenue stream.
So you'll probably see more of that happen.
And certainly, Couche Tard, which their marketcap right now is just under 60,000,000,000 US.
(29:59):
And if they take out seven and I at the 40%premium to Monday's close, which was I think
the idea, then that will make them roughlyequal in size to each other in terms of market
gap.
So this could be, and just for the record, theseven Elevens here in The US can't even hold a
(30:20):
candle to the seven Elevens in Japan.
This is not cultural snobbery on my part.
This is simply when you go to the seven elevensin Japan, the food quality is off the charts,
the service is off the charts, the cleanlinessis typically in line with the high standards
that Japanese have come to expect andforeigners visiting Japan have loved.
(30:42):
And so you'll see if that happens and thatlevel of, let's say, attention to detail spills
over outside of Japan, then this will be agreat win for pretty much everyone.
Anyhow, so it'll be interesting to say, sowhere will future hostile takeovers happen?
(31:04):
It wasn't a hostile takeover, but earlier thisyear, you're probably aware that several
private equity firms took private Toshiba.
And there's a number of other companies thatlike Toshiba may have reached their limit in
terms of business development in Japan andtheir expansion overseas and really need to be
taken to another ecosystem or another level ofmanagement in order to continue to And I would
(31:31):
think, since Bain, Carlyle, KKR and a bunch ofothers have raised record size buyout funds for
Japan, we will see a slew of these hostiletakeovers and bids going forward.
Especially because if you look at Japan,publicly traded companies or private companies,
they're being exchanged, bought or sold atEBITDA multiples that are half, half those in
(31:57):
The US.
So if and this is despite having great profitsand very, very slim and efficient operating
systems.
I think you'll see a large number of thesehappen over the next several years as this
kicks in.
(32:18):
Yeah, know that's really exciting and I justthink there's a lot of energy and momentum
happening in that direction.
What are some of the challenges that I thinkneed to be addressed with like just US and
Japan, you know, LPGP relationships and andalso kind of what are what are people looking
(32:40):
for in managers as they're kind of lookingacross both both seas, right?
Like when US Investors are trying to get accessto Japanese, you know, alternatives, what what
are some things that they should maybe, youknow, consider or look at and then same thing
vice versa?
So in terms of LPGP relationships and any kindof relationships cross border, I mean, very
(33:04):
first thing is cultural misunderstandings,right?
There are certain things that are, There arecertain ways of approaching things that
Japanese take that may strike Americans as slowmoving.
But for Japanese, after having been throughthree decades of difficult times, they are
(33:29):
cautious, needless to say, and they're notlikely to pull the trigger at the first
opportunity.
So there's a certain risk averseness that theJapanese take to all business transactions.
And that means that any US GPs or anybodythat's trying to sell anything in Japan or try
(33:50):
to strike a relationship with a Japanese entitysimply has to be mindful that it will take some
time for them to get comfortable with you.
And part of that is just being aware of whatthose cultural nuances are.
And the other part is recognizing that for theJapanese, my wife is Chinese.
(34:11):
And so the Chinese and the Japanese whilehaving some cultural similarities are in many
ways dramatically different.
Chinese will often strike deals at a handshake,kind of like Americans would.
Japanese will take a long time to getcomfortable with you.
And the little tiny things really matter to theJapanese.
(34:35):
If you submit a document and it has onespelling error, they will take that as a sign
that you don't really pay attention to details,number one.
And if you can't pay attention to small thingslike that, how likely are you to pay attention
to the big things?
(34:55):
So there's many other examples like that.
So I would suggest, first of all, there's ahuge opportunity in Japan for US Managers,
whether they're on the private side or thepublic side.
But it will take a long time for you to developthat relationship.
As long as you're mindful of those culturallandmines that exist between any two cultures,
(35:19):
but are especially stark between Japan and therest of the world, you will be successful.
So just like anywhere, enthusiasm, earnestness,and a good product go a long way to making the
sale.
No, that's great.
I mean, I think really, definitely when youthink about product market fit, just helping
(35:43):
people understand the product.
I feel like a lot of great managers that havegreat access, great deals, but they just can't
close capital.
And I think the biggest issue is theirpositioning or just storytelling.
I mean, to understand what their product is,you really need that one liner to help get the
(36:06):
message across.
And I think if it's so complicated or if yourmessaging is like two, you know, three to four
sentences long, you lose them after like thethree to four words in the beginning of the
sentence.
So I think, you know, people that can storytell better, they probably have, you know, at
benchmark returns probably will do better thanpeople that are claiming they have amazing
(36:29):
outsized returns or outsized opportunities.
It just can't get the message across.
I feel like it's the communication plus havingthe great product and in this market it's just
even more difficult than ever to get peopleover the line, especially when you're dealing
with cross border entities trying to work witheach other.
(36:50):
It's really, it takes time.
Those in your audience who may be thinking ofgoing to Japan to either raise capital or to
find opportunities, it's just think of whatsells well here.
And if it's a high quality offering that youhave, the Japanese will be interested.
(37:15):
I mean, Japanese are perennial students, right?
They're constantly trying to learn more,improve themselves, study what best practices
are in The US and elsewhere.
And so they're very aware of the outside world.
And they're looking for things to be customcrafted so that they fit the unique cultural
(37:37):
parameters that Japan has.
Again, strongly encourage everyone who'swatching this podcast to explore Japan.
And I would just say, make sure you do yourhomework.
Yeah, no, that's really helpful.
What other advice would you give for GPs tryingto engage with LPs?
(38:00):
I know you talked about kind of just makingsure that your understanding of their their
pace in terms of like the diligence.
What are some maybe just common mistakes thatyou've seen that managers have made beyond just
kind of like being patient?
What are some other just cultural things thatwe should think about?
Cultural things.
(38:20):
Well, know, it's speaking of my own personalexperience and having represented a US firm in
Japan and cringed every time my colleagues fromThe US would come over and make cultural
mistakes.
And some of these are simple ones, like forexample, business cards.
(38:42):
Everybody has seen probably the perennialexchange of business cards between Japanese.
That's a really important part of the, let'ssay getting to know you, right?
So
some of the next gen people that don't carrybusiness cards around, they're like, hey, I
don't have a card, just check me out onLinkedIn.
(39:02):
I guess that's kind of seen as maybeunprofessional or unprepared.
Every one of those little differences will makeit that much more difficult to develop a
relationship.
But I'm not talking about just having businesscards, I'm talking about, for example, handing
it correctly, respectfully receiving it, notdishing them out like cards in a game of poker,
(39:29):
and not writing on the business card thatyou've received from somebody.
Simple things like that.
Other things would be, no surprise maybe, notdisplaying strong emotion or anger, slamming
tables, trying to do the quick sell as youwould in The US, right?
(39:49):
That just won't work.
That'll just turn people off.
And then last but not least, I mean, thissounds self evident, but even though many
people in Japan, especially the youngergeneration speak English to a certain level,
just like anywhere, they all prefer to seethings written or said in their own language.
(40:09):
It just makes sure that they can check and makesure that they understand what is this meeting
about.
So to the extent that you can, let's say,acclimate your marketing materials for Japan,
simple things like using what the Japanese calla, a corporate outline, which is like kind of a
(40:31):
one pager on who your firm is, but obviously inJapanese and following those kind of
guidelines, those will go a long way towardsbuilding the bridges that you need to close
business with the Japanese.
Yeah, no, that's really helpful for well,David, you know, really appreciate all this
wisdom and guidance and just the deeper insightinto just that ecosystem of Japan and just, you
(40:56):
know, helping us understand how to bridge thatrelationship much closer and appreciate the
friendship and excited to catch up the nexttime I see you.
I think I'll actually see you tomorrow.
So excited for all of the exciting thingsahead.
And again, thank you so much for your time andyour insight.
Joel, thank you for having me.
(41:17):
Delighted to be here.
Delighted to enjoy some of the culturalintroductions you've made to me, and not just
personal, but culinary as well.
Looking forward to seeing you tomorrow as wellas in the future.
Thank you.
Take care.
Thank you.
I really appreciate it.
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