Steel Partners Japan exodus

Half of the team at Steel Partners Japan, the local arm of the activist US hedge fund, has resigned in recent weeks, prompting concern that the exodus could exacerbate nerves among foreign investors after the arrest of Yoshiaki Murakami, the shareholder activist.

Steel Partners is one of the most prominent foreign investors in the Japanese market, having quietly ratcheted up its stake in more than 30 cash-rich, undervalued firms. The fund, run by Warren Lichtenstein in New York, has kept a low profile in Japan since launching unprecedented hostile takeover bids for Yushiro Chemical and Sotoh two years ago.

Kenzo Kuroda, a founder of Steel Partners Japan, has left the hedge fund, along with two colleagues. It is understood Mr Kuroda is starting his own fund. He left Steel Partners due to a “difference in opinion of how to run the fund”, said a person close to the situation.

Steel Partners’ $3.4bn Japan Strategic Fund has generated very large returns since its inception in April 2002. In the four years to April 30, 2006, the fund made a gross return of 167.4 per cent, or 112.3 per cent net of fees and other incentives, according to documents obtained by the Financial Times.

Steel Partners is the single biggest shareholder in Sapporo Holdings, the beermaker; Sansei Yusoki, a lift manufacturer; and Myojo Foods, an instant noodles maker, among other companies. Mr Kuroda was appointed to Myojo’s board in December 2004. The company said yesterday that Mr Kuroda was still on the board and it was not aware he had left Steel Partners.

According to Steel Partners’ documents, the fund has screened about 3,000 listed companies in Japan, aiming to “pick the low hanging fruit”. It focuses on undervalued stocks, and “acts as a catalyst for change” by “aggressively . . . unlocking value”.

Mr Kuroda and Yusuke Nishi, the other co-founder of Steel Partners Japan, had worked together at Nikko Securities. In 2000, they met Mr Lichtenstein and Tom Niedermeyer, founder of Liberty Square Asset Management and a major investor in the Steel Partners Japan fund, to discuss forming a joint venture. In January 2002, the Tokyo office of Steel Partners was opened.

Mr Kuroda and Mr Nishi were the face of Steel Partners in Japan, meeting with the companies in which the fund had invested a few times a year.

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