Celebrating the power of corporate governance

If anyone is still in doubt about the impact of effective corporate governance in driving returns, look no further than Japan.

This week we bring you an article from Alison Savas, Investment Director at Antipodes Partners, who explains just how effective corporate governance reforms have been in the country.

Notably, threats by the Tokyo Stock Exchange (TSE) to name and shame companies with a return on equity of less than 8 per cent and valuation of less than 1x book. This amounts to telling management of almost half the companies listed in Japan that they should provide a plan of how they will increase capital efficiency, returns and shareholder value via distributions.

The TSE’s intervention began in 2023 and the impact is already pronounced. Savas says that more companies are communicating shareholder return targets, introducing return on capital and excess return KPIs, and are increasing diversity on their boards. Japan has since had “a phenomenal run” in the 12 months and are up 45 per cent in local currency.

Japan’s near neighbour Korea, where the stock market is trailing, is set to pursue a similar assault on poor governance across the companies which are dominated by handful of family run conglomerates. Possible reforms include tax incentives for corporates that increase dividends and/or cancel treasury shares will be implemented in 2024, as well as potentially cutting income tax on dividends for investors.

If successful, Korea could offer another investment option for those with an eye on Asia.

Elsewhere we bring you news that artificial intelligence (AI) continues its relentless march into financial services.

A survey from Ocorian reveals 92 per cent of alternative fund managers are using AI as part of risk and compliance procedures, and of the remaining few who don’t use the technology already, 71 per cent say they will be doing so within the next six months.

Yet while such advances are deemed to improve efficiency and reduce human error, Joe French, Managing Director and Head of Financial Crime at Ocorian, warns of “industry shattering” danger if firms fail to put suitable security in place.

French says: “Just as the industry incorporates the new technology, so do criminals. Bad actors are using technology including AI to target consumers and firms. In recent years they have been able to circumvent banking controls by using sophisticated social engineering techniques to trick victims, making detection much more challenging.”

It is clear that if financial services companies want to harness AI efficiencies, they will have to put some of the cost-savings into cybersecurity. A recent survey by ComplyAdvantage reveals 86% of banks and other financial institutions are increasing their defences against these threats, but whether they are doing enough remains to be seen.

Gill Wadsworth, Editor

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New research from compliance firm Ocorian reveals that more than nine in 10 (92 per cent) alternative fund managers are already using AI as part of risk and compliance procedures.
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers.


Alison Savas, investment director at Antipodes Partners, writes that it’s not uncommon to find conglomerate businesses in Korea and Japan with a large dominant shareholder (often a family), cross shareholdings, inefficient balance sheets with loads of cash or investments weighing on returns on equity, and low payout ratios.
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