Reiko has been managing Japanese equity portfolios for 18 years and, since joining GAM, has become an integral component of our settled Japan equity team, which has established an attractive track record. So, what’s their secret?
“We seek to invest in companies that can repeatedly grow their earnings at a decent pace. We are not interested in timing trades or responding to short-term noise. We like to get to know company management, understand their aspirations and how they intend to reach their corporate goals. We are looking for evidence of dynamism behind the scenes in our efforts to find companies capable of achieving sustainable growth over a period of five years or more. And, since we don’t want to overpay for that growth potential, we have to be very patient.”
Reiko readily concedes that she had no particular profession in mind when she attended university, but had sampled several different countries and cultures by the time she left. “It all began in Belgium where I lived for eight of my pre-high school years before returning to Japan. Then I went to Australia as part of a university course and, looking back, this is where the first subconscious seed to pursue a career in finance was planted.”
“The project I was working on was about direct investment of Japanese corporations outside Japan. Thanks to the influence of my father, I gained the opportunity to visit Komatsu in Sydney. The company is named after a city located in Japan’s Ishikawa Prefecture and is a leading global supplier of construction machinery, such as excavating equipment, bulldozers and forklift trucks. At the time, I interviewed a gentleman in his late 30s who was responsible for the finance and general administration of Komatsu’s Sydney subsidiary. I met him again in Zurich in 2015, by which point he was Komatsu’s CFO (and still is). He not only recognised me but remembered that I had come armed with a very long list of questions when I interviewed him almost 20 years earlier!!”
The finance seed germinated when Reiko spent the third year of university as an exchange student in Paris. “During my studies I met a person who was in France doing research for the Bank of Japan (BoJ). They asked me if I wanted to work there when my studies were complete. So, I started working for the BoJ directly after graduation. I was really excited to begin my career but, at first, I wasn’t 100% sure what was expected of me, which was a bit daunting. I was placed in the Department of the Financial System in a research capacity. At that time, the balance sheets of banks were overloaded with non-performing loans and this was placing depositor funds in considerable jeopardy. We were given two important tasks of making sure that there wasn’t a banking run and delivering a deposit insurance mechanism that would ensure that a certain amount of depositor funds were guaranteed.”
In 1998, Reiko moved to Goldman Sachs but she had to earn the right to a shot at portfolio management. “In one respect, I was fortunate to have started when the asset management industry in Japan was just beginning to take off post deregulation. I joined Goldman Sachs as a salesperson and the business in Tokyo enjoyed tremendous asset growth. Two years later, they decided to expand the portfolio management team for Japanese equities. My application to join was supported by my existing manager as a reward for my work in Sales and Marketing. That was December 2000 and I guess the rest is history!”
As we move on to discuss hobbies and pastimes, Reiko says something quite astonishing:
“I’m a very ordinary human being; I just happen to like reading books!”
She goes on to explain that this is actually a quote from her favourite author, Haruki Murakami, whose works have been translated into over 50 languages. Although Reiko speaks English and French fluently (and her German is coming along nicely too!) she openly concedes that she prefers reading in her mother tongue. And with Murakami being prolific with the pen, there is no shortage of her favoured reading material.
“My favourite Murukami book is entitled ‘Killing Commendatore’. Even the author describes this as a ‘strange story’ about how the life of a portrait painter changes when his wife divorces him – he moves to an old house in Tokyo and finds a painting, the subject of which begins to speak and becomes the title of the book. What I like most about Murakami is the way that he blends fantasy with reality. After a while, you begin to appreciate that there is a naked honesty about fantasy – people can think and say what they really feel because there is no judgement. Conversely, reality is more about agenda and compromise than the absolute truth. Murakami himself wrote ‘...almost no one is looking for painful truths. What people need is beautiful, comforting stories that make them feel as if their lives have some meaning.’ I really identify with that sentiment.”
And it’s not just the written word that inspires Reiko – she is also a music fan – albeit a very choosy one! “Although I enjoy Japanese rock, Rolando Villazon, a French/Mexican opera singer, is absolutely my favourite artist; I have seen him live in Zurich (of course), Paris and Baden-Baden. Villazon talks in terms of ‘burning’ performers with short careers and ‘cerebral’ performers who enjoy longevity. He was certainly on fire in his 20s and 30s, but required delicate throat surgery in 2009. He has subsequently re-emerged as more of a cerebral artist, no longer performing in operatic productions – just concerts. Nevertheless, as far as I can tell, the temperature of his emotional engagement with both the music and audience remains decidedly hot!”
Away from the library and concert arenas, Reiko clearly enjoys living in Switzerland and identifies a number of similarities with her homeland. “The obvious one is punctuality. This is an absolute pre-requisite in Japan and I like the fact that the Swiss are so proud of their train services. There is also the alignment with peace and harmony – we call it ‘wa-culture’ in Japan. It basically means that it is impolite to come directly to the point – make conversation with people…don’t order them about.
“In addition, both countries are obviously steeped in history and their citizens are justly proud of their heritage. I love to visit museums in Japan, Switzerland and all over Europe. We greatly respect ceremonial rituals in Japan and there are small shrines and temples, even in the residential suburbs. The emphasis is always on spirituality rather than religion.
“I like to wander around small towns and villages admiring the flora and fauna. Some 20 years ago, I obtained a teachers diploma in Sogetsu, which is one of the Japanese ‘schools’ of flower arrangement, having taken lessons for several years. The style differs from western cultures in that space matters in Japan. Consequently, we like to create roominess in our flower arrangements, using more of the branch for bend and reach than the typical ‘all head’ displays in Europe.”
“However, the one thing that sets Switzerland apart is that, in Zurich, we have the city, the lake and the mountains in very close proximity. Tokyo is a beautiful city but it is absolutely massive. I love to get out into the open air and greatly appreciate the opportunity to find myself walking in the mountains and yet be close to home and the office at the same time.”
“Conversely, the one thing that an expat will always say they miss from their homeland is the cuisine. Being Japanese, I love fish – grilled and raw – and yuzu is an essential condiment. Yuzu is a bit sour, with more substance than lemon, and combines well with ginger and horseradish. You can eat it with both meat and fish. Fortunately, yuzu is very popular in Paris, which is not too far away, and I also love the Japanese restaurant Yu-an (which means ‘a place to eat and have fun’) in Zurich.”
Reiko has been smiling throughout the interview, but there is an added twinkle in her eye as we shift topics to discuss the aspects of her role she enjoys the most.
“Ernst (Glanzmann) and I are completely dedicated to bottom-up stock selection. When I meet with corporate management I really like to understand the company. Unlike my formative experience in Sydney with Komatsu, I don’t want these meetings to degenerate into a rigid Q&A framework. I like management to talk openly about their business and I also provide my perspective to them as a shareholder, which is something they cannot possibly gain from within. In this respect, I like to think that our meetings are mutually beneficial.”
“We often read and hear from others about the role that yen strength and weakness can play in determining the direction of Japanese equity markets, but this is just an unnecessary distraction. We are not overly interested in the directionality of the market; we just aim to ensure our portfolio contains the best of the market (‘Japanese Leaders’). Furthermore, while it is true that, over the last decade or so, the inverse correlation between yen appreciation and equity market performance has been quite pronounced, this is very much an exception to the rule.”
“In the preceding 25-year period, the occurrences of such scenarios were very few and far between. To quote the late and legendary Sir John Templeton “the four most expensive words in the English language are ‘this time it’s different.’” In accordance with this four-word mantra, investors look for reasons to justify the emergence of a recent phenomenon and why it should continue. The yen / equity correlation is no exception. There is a hugely exciting and evolving corporate landscape in Japan so why would we want to get absorbed in matters we can neither control nor predict?"
“Japanese corporations are becoming more westernised. It used to be the case that shareholders would approve anything but proxy voting is now much more intense and plans have to be fully thought out to ensure shareholder backing. Trying to understand the way that two very different cultures are coming together is just part of the challenge we face. We need to be appreciative of any conflicts between existing and ‘new’ values and also any business breaks that arise during the evolutionary process. Our job is to ensure that we capitalise on the right opportunities – and only the right opportunities – and I am genuinely excited to be involved in this on a day-to-day basis.”
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development.