Speaker 1: This is Wall Street Week. I'm David Weston bringing you
Speaker 1: stories of capitalism. This time capitalism Japanese style. This is
Speaker 1: an ancient land with the imperial dynasty stretching back over
Speaker 1: one thousand years. Apollo Global Management invited us along as
Speaker 1: it convened the meeting of its two hundred partners from
Speaker 1: around the world to see firsthand the investment opportunities it
Speaker 1: sees in Japan today, a world that has not traditionally
Speaker 1: been associated with risk. We're going to talk with Mark Rowan,
Speaker 1: the head of Apollo, as well as the leaders of Sony,
Speaker 1: Panasonic Automotive, and the Tokyo Stock Exchange. But we start
Speaker 1: with the story of choraku. That's a Japanese term meaning
Speaker 1: falling behind. In nineteen eighties, Japanese industry was the envy
Speaker 1: of the world in a variety of sectors such as automotive, electronics,
Speaker 1: and steel. As a result, asset values went out, particularly
Speaker 1: here in Tokyo, where real estate values went sky high,
Speaker 1: supported by patient capital that did not demand a lot
Speaker 1: of returns. The nineteen nineties, though, saw that asset bubble burst,
Speaker 1: and when the Japanese government in Japanese banks did not
Speaker 1: step in aggressively. They took what was a lost decade
Speaker 1: and turned it into a lost three decades.
Speaker 2: Most people's expectation of Japan or business mindset of Japan
Speaker 2: is thirty years of stagnation.
Speaker 3: I think, you know the we called the lost ages
Speaker 3: during decads and we do not have substantial growth in Japan.
Speaker 4: Japan faced the deferation for VADI eighty long.
Speaker 5: Time Japan has been you know, suffering from deflation for
Speaker 5: more than two decades.
Speaker 1: In the late eighties, Japan's economy grew by as much
Speaker 1: as six point seven percent a year, only to have
Speaker 1: that growth plummet for most of the next thirty years,
Speaker 1: hovering between zero and two percent and contracting during the
Speaker 1: Great Financial Crisis and the COVID pandemic, relegating what had
Speaker 1: been the third largest economy in the world to number four.
Speaker 1: As Germany surged past the nick stock market went thirty
Speaker 1: four years without setting new highs. Japanese government bond yields
Speaker 1: turned negative and stayed there for years. But all that
Speaker 1: could now be changing as Japan emerges from those lost decades.
Speaker 2: What a lovely day in Tokyo.
Speaker 1: Mark Rowan is CEO of Apollo Global Management.
Speaker 2: This is a savings culture, and holding on to your
Speaker 2: cash or leaving your money into jgb's for the past
Speaker 2: thirty years has been fined because there's been no inflation.
Speaker 2: In fact, there's been deflation. All of a sudden, you
Speaker 2: have closer to three percent inflation. You have interest rates
Speaker 2: up for the first time, and that savings is going
Speaker 2: to be deployed productively, and now some of it has
Speaker 2: to go toward retirement. They will want better solutions for retirement,
Speaker 2: but some of it is just going to keep up
Speaker 2: with purchase price and purchasing power. I think about what's
Speaker 2: happening in Japan, and in Japan, they're going through generational change,
Speaker 2: and it's generational change in corporate governance, it's in interest rates,
Speaker 2: it's in government policy, and in many ways they are
Speaker 2: the first of the Western democracies to face real aging,
Speaker 2: retirement and high levels of government debt. And what's happening
Speaker 2: here is totally different than people's expectation, because most people's
Speaker 2: expectation of Japan or business mindset of Japan is thirty
Speaker 2: years of stagnation, and that is so dynamic here today.
Speaker 1: The thing that got things going again for Japan was
Speaker 1: ironically adversity as supply change came under stress from the
Speaker 1: COVID shutdown and a war in Ukraine put pressure on
Speaker 1: energy prices, a big problem for a country dependent on
Speaker 1: oil from abroad.
Speaker 4: With the supply hand breakdown, corporate has executes to transfer
Speaker 4: the price to the retail. So now the CPI started
Speaker 4: to suddenly, which has been zero one negative for very
Speaker 4: long time, suddenly went up to almost three percent.
Speaker 5: If she can get to third, that's a.
Speaker 1: Long a g Waida is head of Asia Pacific for.
Speaker 4: Apollo, everybody has to think differently. So with the defrational environment,
Speaker 4: cash has been the king. But with the inforation at
Speaker 4: the close to three percent, cash is not the right
Speaker 4: assets to own. It's actually the war's assets to own.
Speaker 4: So that has to put the pressure out of a
Speaker 4: lot of people to think about things differently.
Speaker 1: Even before the return of inflation, those responsible for Japanese
Speaker 1: markets were thinking differently, starting with Prime Minister Abbe's call
Speaker 1: for market reform back in twenty fifteen.
Speaker 6: And it's true that for maybe a good decade Japan
Speaker 6: did struggle in finding its way out of that banking crisis.
Speaker 1: Maria Soliz is Director of the Center for Asia Policy
Speaker 1: Studies at the Brookings Institution and author of Japan's Quiet Leadership.
Speaker 6: But the fact is that we have overused the image
Speaker 6: of the last decades because this has not been a
Speaker 6: period where Japan has stood still, and people referred to
Speaker 6: this period as thirty years. And a lot has happened
Speaker 6: in the economy, in the politics, in the international projection
Speaker 6: of Japan that actually shows that undercurrents of change have
Speaker 6: repositioned where Japan stands today. Some areas actually there was
Speaker 6: a lot of progress. I think in the area of
Speaker 6: corporate governance you do see important changes there. I also
Speaker 6: believe that the notion of women omics, the idea that
Speaker 6: Japan needed to create conditions for women not to have
Speaker 6: to choose between a career and a family raising a family,
Speaker 6: those also were very, very positive, so much so that
Speaker 6: Japan actually has a very high level of female lever participation.
Speaker 1: As much as Prime Minister Abbe may have laid the
Speaker 1: groundwork for reform, the state of the economy did not
Speaker 1: demand the changes he wanted. For that they needed three
Speaker 1: percent inflation to kick in.
Speaker 6: Well, it has changed everything. It has changed the politics,
Speaker 6: it has changed the main economic challenges that the country faces,
Speaker 6: and I think in many ways it has redirected areas
Speaker 6: where reform is necessary.
Speaker 1: Now inflation has returned, and there's a new prime minister
Speaker 1: in town, one who's just won a landslide victory and
Speaker 1: seeks to take Abyamk's reform to a new level.
Speaker 5: So many similistic changes them in the Japanese not only
Speaker 5: the Japanese market, but also Japanese society.
Speaker 1: Hiromi Yamaji is Group CEO of the Japan Exchange Group,
Speaker 1: which oversees the Tokyo and Osaka stock exchanges. What was
Speaker 1: the role of government, the Japanese government in the reforms.
Speaker 5: I think it all since the prime ministave supported our
Speaker 5: governor's deform back in twenty fifteen. I think all the
Speaker 5: successes of Mista Abe Suga, the Kishida Shiba, and the
Speaker 5: current Miss Takaichi, all of them are quite big supporter
Speaker 5: of a governance deform because all of them are convinced
Speaker 5: that growth of the private sector is essential for the
Speaker 5: growth of entire Japanese economy.
Speaker 1: Since taking over the TSE in twenty twenty one, Yamaji
Speaker 1: has implemented a series of reforms to encourage Japanese companies
Speaker 1: to become more profitable and more accountable. Your reforms of
Speaker 1: the markets has various aspects to including price to book
Speaker 1: ratio and interlacking ownership of equity and independent directors. What
Speaker 1: are the most important ones?
Speaker 5: I think to transform the mindset of the management of
Speaker 5: the companies. That's very important and also probably the most
Speaker 5: challenging thing. And PBR is just kind of a you know,
Speaker 5: financial indicator to just gauge how much you progressed. But
Speaker 5: I think, I think fundamental challenge is to transform the
Speaker 5: mindset of the management.
Speaker 1: Not all minds are willing to be transformed. Have you
Speaker 1: had some management changes in order to respond to it?
Speaker 7: Well?
Speaker 5: I think, you know, at least once a year we've
Speaker 5: analyzed the current situation of the Japanese market or Japanese companies,
Speaker 5: and we are not the entity to assess the progress.
Speaker 5: The Grover Investors is the you know, the people who
Speaker 5: assess how much progress we've made. And you know, last
Speaker 5: year we've the most recent one. We did a analysis
Speaker 5: of a current situation December last year based upon the
Speaker 5: four hundred Grover investors domestic and overseas.
Speaker 1: If the markets are any judge, Yamaji's efforts are bearing fruit.
Speaker 5: Last yea was the record or high modern We have
Speaker 5: five thousand, one hundred mondays and the total amount was
Speaker 5: thirty five two years. Yeah, both of them are recorded high.
Speaker 5: And that means is that the buyer side seeking for
Speaker 5: other say more growth or algier needs for growth, and
Speaker 5: the set out side is trying to reorganize their business portfolio.
Speaker 4: Of Tokyo Stock Exchange, pushing the corporate to create more
Speaker 4: efficiency in the capital usage for corporates and ROE has
Speaker 4: been very, very low, and more than fifty percent of
Speaker 4: the company listed in Japan has been trading below the
Speaker 4: book valio. So they are pushing for capital efficiency and
Speaker 4: they need to explain the reason why they're trading below
Speaker 4: the book.
Speaker 1: The Japanese push for higher returns and response to reflation
Speaker 1: comes against the backdrop of a long term challenge that's
Speaker 1: increasingly common in major economies around the world. A rapidly aging.
Speaker 4: Workforce population between age fourteen to sixty five hit the
Speaker 4: peak in nineteen nine and since then, because society started aging,
Speaker 4: people spend less, so always demands showing faster than supply,
Speaker 4: so the country faces long term defration and low growth.
Speaker 2: Well, I think we're looking at things that are structural
Speaker 2: that are going to take place over the next five
Speaker 2: to ten years, the need for Japan to provide for
Speaker 2: its aging population and to deal with its aging population,
Speaker 2: the need for Japan to finance what it needs to finance,
Speaker 2: and the opportunity that Japan has.
Speaker 1: Japan responded to the challenges of its aging workforce by
Speaker 1: adding workers from groups that had been on the sidelines.
Speaker 6: Well, this is clearly one of the most serious challenges
Speaker 6: because they share a drop in the level of a
Speaker 6: population absolute numbers, but also the graining of the population.
Speaker 6: The other one who's of course to bring in women
Speaker 6: into the workforce, to bring in the elderly, who in
Speaker 6: Japan tend to be still very active, and to make
Speaker 6: sure that you can as much as possible maximize labor participation.
Speaker 1: But there is a limit to how many women, elderly
Speaker 1: and foreign workers Japan can bring into the workforce. What
Speaker 1: does reform of capital markets do to help that problem?
Speaker 5: I think, you know, the corporate governance reform sets that
Speaker 5: we'd like to see more active female workers in the
Speaker 5: in the workforce, and also a more senior persons are working.
Speaker 5: Really in Japan now, the labor force increased in Japan
Speaker 5: but obviously a female job participation as well as a
Speaker 5: senior members job part spationition. There's a seedting. I think,
Speaker 5: you know, we don't expect too much from those new
Speaker 5: forces coming in. So I think Japanan's companies has been
Speaker 5: making a huge investment into automation or digitalization AI usage.
Speaker 5: I think those are very important to enhance productivity, even
Speaker 5: though appropriation has been shrinking, and also he's going to
Speaker 5: shink in the future.
Speaker 1: What are the large long term capital means that companies say,
Speaker 1: I need to have this for a long period of time.
Speaker 2: This is manufacturing, This is energy, This is AI and data,
Speaker 2: this is infrastructure. These are the big buckets that we're
Speaker 2: looking at. And the scale just of the infrastructure market,
Speaker 2: or as I say, just of the AI, data energy
Speaker 2: market as one package, is beyond anything we can comprehend.
Speaker 2: This is measured in trillions. Sometimes I joke and I say,
Speaker 2: we're about to spend every dollar since the invention of fire,
Speaker 2: and that's what we're doing. We are as a world
Speaker 2: going to issue more debt, access more capital in twenty
Speaker 2: twenty six than ever before. I think this is ultimately
Speaker 2: about growing the pie. I think the Japanese were very
Speaker 2: defensive for a long period of time, with good reason
Speaker 2: given what was happening in the hall market. I think
Speaker 2: there's a new swagger.
Speaker 1: Coming up, matchmaking between abundant capital and abundant capital needs
Speaker 1: the opportunities that presents for companies like Apollo. This is
Speaker 1: a story about henkaku. That's a Japanese term meaning fundamental reform.
Speaker 1: We've come to Japan to see how and why it
Speaker 1: is changing the way it does business, changing what it
Speaker 1: expects from its corporations, and changing what it expects in
Speaker 1: its investments, not just for the sake of change, but
Speaker 1: in order to raise the capital needed to invest in productivity.
Speaker 1: Over the last three decades, Japan fell from second to
Speaker 1: fourth in the ranking of world economies. As it struggles
Speaker 1: to climb back up the leaderboard, it is focused on investment.
Speaker 1: In this case, trillions of dollars.
Speaker 4: Worth fifty five percent over the asset sits in cash,
Speaker 4: historic gardy, and the corporate has been accummulated a lot
Speaker 4: of cash balance sheet because they want to be safe
Speaker 4: and they want to be sustainable, and cash is the
Speaker 4: safest assets for them to own. So even though the
Speaker 4: raidars of the being lowest in the world. The ratio
Speaker 4: of the cash on balance sheet among the old the
Speaker 4: culprits was the highest in the world.
Speaker 1: That must be a lot of cash.
Speaker 4: It is retail asset is two thousand treating en, so
Speaker 4: that's a lot of cash.
Speaker 8: Well.
Speaker 1: Almost fifty five percent of household financial assets in Japan
Speaker 1: set in cash and deposits in twenty twenty two, a
Speaker 1: figure far higher than the US or Europe. By twenty
Speaker 1: twenty four, that number had inched lower to around fifty percent,
Speaker 1: and the percentage of assets in equity markets had crept
Speaker 1: up to fourteen percent. The head of the Tokyo and
Speaker 1: Osaka Stock Exchanges, Hero Mediyamaji, says that many Japanese companies
Speaker 1: are starting to use that cash to change the way
Speaker 1: they do business.
Speaker 5: Japanese companies are quite receptive for new de mental technologies
Speaker 5: like AI. I think Japanese companies are are the adopters
Speaker 5: of a new technologies. But at the same time, how
Speaker 5: do we take advantage of those new technologies that you know,
Speaker 5: you have to be quite serious how to utilize in
Speaker 5: what kind of areas. So now we are still in
Speaker 5: the very early stage, but I think Japanese company is
Speaker 5: quite a receptive to those new ideas.
Speaker 4: Japan is I think well positioned for the industrial renaissance,
Speaker 4: the energy shift, supply chain breakdown, and they need to
Speaker 4: rebuild it AI changes. There are a lot of big
Speaker 4: themes going on where companies need a lot of capets,
Speaker 4: and the size of the new finance finance needs is
Speaker 4: growing so fast that big demand for the capex will
Speaker 4: create a lot of demand for our news, which the
Speaker 4: note of a capital camp shift.
Speaker 1: To Japan may have a big need for investment, it
Speaker 1: may have the capital that's needed, but our ex financial
Speaker 1: institutions in a position to direct the capital to where
Speaker 1: it is needed and at scale.
Speaker 2: Japan is like I would say, like many economies. If
Speaker 2: you think about the structure of the Japanese market, it
Speaker 2: is primarily two financial products bank debt and equity.
Speaker 1: Apollo CEO Mark Rowan sees his company is providing a
Speaker 1: much needed third way to finance the capital investment Japan needs.
Speaker 2: The equity market in the context of the world is
Speaker 2: actually quite small though it is the second largest equity
Speaker 2: market in the world, but it is roughly the size
Speaker 2: of Nvidia. Just to put things in perspective, there's not
Speaker 2: the well developed you know kind of corporate bond market
Speaker 2: that exists throughout the US, and so I think what
Speaker 2: we're watching not just in Japan but around the world
Speaker 2: is corporate CFOs. Corporate treasurers now understand that there are
Speaker 2: three types of finance, things that are really highly rated
Speaker 2: and short. You want to be with your banks. There's
Speaker 2: no better provider equity, very very expensive public markets for
Speaker 2: plain vanilla, very very good execution. Everything else comes to
Speaker 2: the private market. The largest part of the private market
Speaker 2: today is investment grade. It is these large companies who
Speaker 2: have these transformational opportunities who want to match long dated investments,
Speaker 2: and most of what we're doing is long dated with
Speaker 2: long dated capital, and that is not what the banking
Speaker 2: system does well. That is not what the public markets
Speaker 2: do well. And so you're seeing this extraordinary growth in
Speaker 2: the US. We've seen it in lots of ways. You've
Speaker 2: met as financing last year at some thirty billion. In Europe,
Speaker 2: we've seen the Europeans, who also have structural issues via
Speaker 2: v capital availability, really embrace private finance. In Japan, we're
Speaker 2: seeing the beginnings of that. The work we've done with Sony,
Speaker 2: the work we've done with SMBC, the work we've done
Speaker 2: in financing buy now, pay later Japanese companies is beginning
Speaker 2: to open up in the minds of CFOs and treasures
Speaker 2: that there's just another alternative.
Speaker 1: It's not the private credit firms like a policy to
Speaker 1: replace Japanese banks. A POLOS team says that it can
Speaker 1: supplement what the banks do.
Speaker 4: The public credit market is very very small. I think
Speaker 4: there's the only sixty trity again outstanding on the corporate
Speaker 4: bond market. Compared to the size of the finance, it's
Speaker 4: being quite small. So a lot of finance has been
Speaker 4: done by banks, who is basically private credit. So I
Speaker 4: think there's a demand for longer dated capital and also
Speaker 4: compress capital because the bank can provide cheaper and short
Speaker 4: term finance, and with the huge capex needs, they need
Speaker 4: longer term, more complex finance structure where the private capital
Speaker 4: markets can solve the problem for it.
Speaker 2: We will start to establish private as just another alternative
Speaker 2: for every CFO and every treasure and by the way,
Speaker 2: in partnership with the Japanese banking system, because at the
Speaker 2: end of the day, we don't do what the banks do.
Speaker 2: We don't provide advice, we don't provide hedging, derivatives, m
Speaker 2: and a any other service that's the purview of the
Speaker 2: banking system. We provide a piece of capital that is
Speaker 2: in very short supply in Japan, investment grade long dated
Speaker 2: to finance what they need.
Speaker 5: It's growing gradually, and I think it's a good alternative
Speaker 5: investment alternative funding BIKU from the viewpoint of the companies,
Speaker 5: as you said, used to be banks are the main credits.
Speaker 5: But in these days because of the banking industry has
Speaker 5: so many restrictions, capital restrictions and kinds of things, and
Speaker 5: so their capability to provide lending to apply the sector
Speaker 5: is getting to a limited the amount. So I think
Speaker 5: private credit can play a big role in Japan as well.
Speaker 1: Firms like Apollo Global Advisors may see an important opportunity
Speaker 1: in the newly evolving Japanese markets. But our Japanese investors
Speaker 1: and companies receptive to adding private market alternatives to their
Speaker 1: means of financing. As you go out into the Japanese market,
Speaker 1: what resistance do you get to these new forms of
Speaker 1: investment vehicles.
Speaker 2: I don't think it's resistance. I think again, just like
Speaker 2: in the wealth market, this is about education. In many instances,
Speaker 2: we are not going to Japanese corporates directly. We're going
Speaker 2: with their longtime banker. In some instances, particularly when Japanese
Speaker 2: companies are financing overseas, we'll deal with them directly. Our
Speaker 2: team here is unbelievable. From our chairman Tanakasan to the
Speaker 2: head of our Asian Business Aetasan, these are very well known,
Speaker 2: very substantive individuals who have been at the cutting edge
Speaker 2: of finance for a very long time. The weight we
Speaker 2: have put here, at the intellectual capital we've put here
Speaker 2: is second to none. I think we're at the beginning
Speaker 2: of a trend, but I think this is going to
Speaker 2: be just a fascinating market for any number of reasons.
Speaker 1: I have never seen a business strategy or an investment
Speaker 1: that doesn't have some downside risk. So what are the
Speaker 1: possible downside risks to this bright new future that you see?
Speaker 2: Well, look, the downside risks are the same risks that
Speaker 2: exist around the world. So for me, the way I
Speaker 2: describe it is in my business career, most of the time,
Speaker 2: where I'd say ninety five percent of the outcomes are
Speaker 2: between two sidelines, and sometimes we like what's on the
Speaker 2: playing field, and sometimes we don't. Sometimes the economy is
Speaker 2: better or worse. Sometimes the capital markets are better worse,
Speaker 2: valuations better or worse, but we know how to navigate
Speaker 2: those things, and the chance of an outside the sidelines
Speaker 2: outcome was small and unpredictable. That's my normal setup today.
Speaker 2: I only think seventy seventy five percent of the outcomes
Speaker 2: are between the two sidelines. And what's between the two
Speaker 2: sidelines is amazing capital cycle grow both employment, inflation coming
Speaker 2: down on a worldwide basis, lots of opportunity, but we
Speaker 2: can ignore that there is an increased risk of an
Speaker 2: out of the box, out of expected outcome, and it's
Speaker 2: of a magnitude that investors people like us, need to
Speaker 2: pay attention to that. And yes, there's always the credit cycle.
Speaker 2: I don't think that's what we're talking about. I think
Speaker 2: we're talking about geopolitics. I think we're talking about government deficits.
Speaker 2: I think we're talking about rates up and rates down.
Speaker 2: And so for the first time in a very long time,
Speaker 2: we are trying to address outcomes that perhaps could occur
Speaker 2: outside of what we normally see in front of us.
Speaker 1: But absent one of those outside the sidelines events. Rowan
Speaker 1: sees his firm as well positioned for a bright future
Speaker 1: in Japan.
Speaker 2: When I look at our toolkit, our toolkit starts with
Speaker 2: retirement services. We have been here any number of years.
Speaker 2: We are a very large reinsurance player to the Japanese market,
Speaker 2: and we are creating products for Japanese retirees. Second, we're
Speaker 2: a provider of capital to industry, whether it's Sony or
Speaker 2: SMBC or others. Third, we are in the buyout business here.
Speaker 2: This is one of the best buyout businesses here. You've
Speaker 2: met with some of our portfolio companies or companies we've
Speaker 2: had an investment in here. It is a very robust
Speaker 2: market and a very interesting market. The capital coming off
Speaker 2: the sidelines from households is looking for better rates of
Speaker 2: return now that they are facing three percent inflation, and
Speaker 2: I expect this to be a very promising wealth market
Speaker 2: where people want safe, healed, they want defensive equity, They
Speaker 2: want the kinds of things that have been available institutionally
Speaker 2: around the world for a long time that are now
Speaker 2: available as wealth products.
Speaker 1: Coming up the challenges and opportunities of changing things, shaking
Speaker 1: things up in the Japanese c suite. This is a
Speaker 1: story about GSM that's a Japanese term meaning putting theory
Speaker 1: into practice. Japan is changing the way it does business
Speaker 1: so it can have the money it needs to invest
Speaker 1: in productivity. What does that mean for Japanese corporations the
Speaker 1: way they are structured and the way they finance those investments.
Speaker 2: There is a real corporate revolution going on. The notion
Speaker 2: of every company needing a plan to get above one
Speaker 2: times book and essentially using shame as a tool for
Speaker 2: reform has been very very effective.
Speaker 5: Management has the a best position to fulminate a plan
Speaker 5: how to improve it improve the current situation. Company itself
Speaker 5: has to drive how to transform the company.
Speaker 1: The combination of a reflating economy and market reforms in
Speaker 1: Japan are reverberating through corporate boardrooms and sees suit causing
Speaker 1: CEOs to rethink everything from how they finance their businesses
Speaker 1: to what businesses they want to have in their portfolio.
Speaker 1: Are we seeing yet the effects of the reforms? Are
Speaker 1: CEOs acting differently more actively?
Speaker 6: Well? I do think we're seeing changes. I think that
Speaker 6: we begin to see more diverse borts and we begin
Speaker 6: to see perhaps the taking more of opportunities.
Speaker 1: Moreo Solis is a japan expert at the Brookings Institution.
Speaker 6: I believe that this could be a good moment I
Speaker 6: think to think about new wave of investments. I think
Speaker 6: one of the challenges source of frustration is that corporate
Speaker 6: Japan has been very risk covers. This might be a
Speaker 6: way in which begin to see an appetite for taking
Speaker 6: on more investment.
Speaker 1: Japanese company's willingness to rethink how they do business may
Speaker 1: extend even to whether they want to be listed on
Speaker 1: the Tokyo Stock Exchange.
Speaker 5: The number of delisting used to be only fifty company delisted.
Speaker 5: Now you know last year was one hundred and twenty
Speaker 5: five company ditisted and now this year twenty twenty six
Speaker 5: already sixteen announced to a dealist. So I think in
Speaker 5: a number of companies scrutinizing whether the keep listing is
Speaker 5: the best way for them to ursu growth.
Speaker 1: As the head of the company overseeing both the Tokyo
Speaker 1: and Osaka stock Exchanges, himI Yamaji leaves it up to
Speaker 1: individual companies to decide their best path for growth, but
Speaker 1: since taking over, he has also implemented reforms that required
Speaker 1: disclosure and explanation of firm strategies to become more profitable.
Speaker 5: Used to be Japanese companies didn't spin off any operations
Speaker 5: last year. Only the half six months last year we
Speaker 5: had a two hundred and eighty coveouts spin offs, So
Speaker 5: you know that means that they are quite serious. To
Speaker 5: the ASCETA side, is quite serious to reorganize their business portfolio.
Speaker 5: But at the same time, they are realistic enough that
Speaker 5: they recognize that they are not a good owner. I
Speaker 5: think that's a good sign.
Speaker 1: One of those carve outs came in twenty twenty four
Speaker 1: when Panasonic Holdings sold a majority interest in Panasonic Automotive
Speaker 1: Systems to Apollo Global Management. Shares of Panasonic Holdings have
Speaker 1: been on a tear ever since, up more than seventy
Speaker 1: percent since the deal was completed. It's amazing. Masashi Nakayasu
Speaker 1: is CEO of Panasonic Automotive, now focused on the transition
Speaker 1: from automobiles as driving experience to a mobility experience, something
Speaker 1: he calls joy in motion.
Speaker 7: The value of the car a shifting from driving performance
Speaker 7: into the mobility experience which the people are having in
Speaker 7: the cas space, but individual person having a different sense
Speaker 7: of comfort like temperature as well. So we use our
Speaker 7: technologies and also AI enhanced technologies to fit to a
Speaker 7: personalization and make individual person making more comfortable in the car.
Speaker 1: Nagayasu says, carve outs like Panasonic Automotives can bring with
Speaker 1: them a new focus on a more specific business.
Speaker 7: Panasonia is congrammarated company and they have these diversified business
Speaker 7: models and they have decided that automotive sector is not
Speaker 7: the focus. So on the other hand, partnering with Aporo,
Speaker 7: we can really one hundred percent commit to our automotive
Speaker 7: sectors field. So this is rather you know, positive for
Speaker 7: us to really stick to that, you know.
Speaker 5: Sadly, the purpose of the spin off is that probably
Speaker 5: that particular the now all now that of operations believes
Speaker 5: that they are not the best choice from the billpoint
Speaker 5: of the business itself. In other words, there might be
Speaker 5: better partner for them, and so that you know, they believe,
Speaker 5: you know, there are maybe a pe Funds which owns
Speaker 5: other operations related to this particular business. I think, you know,
Speaker 5: those are many different kinds of ways thinking, but I
Speaker 5: think it's important for from the billpoint of the company
Speaker 5: that they believe they are not a good owner of
Speaker 5: that particular company and also they are not the best
Speaker 5: owner to stimulate the growth of this particular business. I
Speaker 5: think you know a Japanese companies started thinking many different
Speaker 5: kinds of ways, and that's good for the for the
Speaker 5: entire economy.
Speaker 1: In addition to focus, Nagayasu says, a firm like Apollo
Speaker 1: can also bring its particular expertise and working closely with management.
Speaker 7: So the way of of the style Aporo is asking
Speaker 7: us discipline. I take it this very positive way with
Speaker 7: few Panasonic group constraints. So I don't want to say
Speaker 7: the freedom, but we really can focus on what we
Speaker 7: need to do.
Speaker 1: What sorts of profit goals or targets do you have
Speaker 1: for Panasonic a motive.
Speaker 7: We are not disclosing much of numbers. However, you know
Speaker 7: our most important KPI right now is E minus c
Speaker 7: ebitda minus capex. We are aiming to triple that. This
Speaker 7: emails in number from in twenty seven compared to twenty
Speaker 7: twenty four. And so far since you know partnership started
Speaker 7: with Aporo, partnership has been started, then the number is
Speaker 7: showing a positive way. And also look ahead the midum
Speaker 7: a short medium goal. We are quite advanced in this
Speaker 7: situation right now.
Speaker 1: The carve outs may help bring more discipline to companies
Speaker 1: like Panasonic Automotive. But there are other transformations in Japanese
Speaker 1: business that require injection of patient capital into existing companies,
Speaker 1: transformations like the one ongoing at Sony under CEO Hierarchy Totoki,
Speaker 1: moving from manufacturing the electronics on which the world consumes
Speaker 1: entertainment to producing the entertainment itself.
Speaker 3: Sony has had a lydical to great reputation in the
Speaker 3: area of consumer ecmpanis and but you know the at
Speaker 3: the same time, digitalization has happened and things move from
Speaker 3: the analog to digital in terms of the technology, and
Speaker 3: in this area generally it's particularly different from the difficult
Speaker 3: to differentiate the you know, the pulla from the others
Speaker 3: in the area of the consumer electronics, and then it's
Speaker 3: very difficult to you know, the compete with the other players.
Speaker 3: And that environment invite new entrant to the industry, first
Speaker 3: from Korea and followed by China and particularly China as
Speaker 3: you and son you know, they have enormous domestic market.
Speaker 3: Backed by that market, they try to export their products.
Speaker 3: The consumer efferentciata now need a massive scale and the
Speaker 3: compassion field comes to a volume and price and unfortunately
Speaker 3: it's very hard to maintain that volume in a Sony group.
Speaker 1: How does the Sony transformation fit together with the broader transformation?
Speaker 1: Does it affect how you're transferring Sony that the entire
Speaker 1: industry is changing.
Speaker 3: We forced to change because you know the when I
Speaker 3: came back from a subsidiary to headquarter, and that was
Speaker 3: twenty thirteen, that was a very severe time and the
Speaker 3: financial performance is very back and many good people who
Speaker 3: are left company.
Speaker 1: It's been a big change for Sony to branch out
Speaker 1: from its traditional position in consumer electronics, but it's already
Speaker 1: well into that transition. Around a decade ago, entertainment made
Speaker 1: up only thirty percent of its revenue. By twenty twenty four,
Speaker 1: it had grown to sixty percent of the company. Let's
Speaker 1: talk about the creative side. As I understand it, it's
Speaker 1: more than half of the business for Sony at this point.
Speaker 1: What are the component parts of that that you rely on?
Speaker 3: That's including game and the music and motion pictures and
Speaker 3: three these are entertainment business and the more than sixty
Speaker 3: percent of revenue now.
Speaker 1: And of those three, which is the largest one is
Speaker 1: it gaming?
Speaker 4: Gaming?
Speaker 1: So tell me about the gaming business.
Speaker 3: We are always talking about the play session should be
Speaker 3: a best place to play from users perspective and at
Speaker 3: the same time best to play to publish because we
Speaker 3: have a great relationship is a bunch of third party
Speaker 3: you know, game publishers, and of course we have great
Speaker 3: studios as a first party.
Speaker 1: Sony's major games include international blockbusters like God of War,
Speaker 1: Ghost of Sushima, and Hell Divers. But as successful as
Speaker 1: they've been, Totki San prefers to supervise rather than be
Speaker 1: a gamer himself.
Speaker 3: I'm good at, you know, the thinking about a business
Speaker 3: model and including a financial and also the you know,
Speaker 3: think about the top down approach, which industry is suitable,
Speaker 3: which we have in Sony, which field we can capable
Speaker 3: to compete with the other companies. That kind of you know,
Speaker 3: the way of thinking is very helpful to develop my career.
Speaker 1: Do you personally consume Sony created a product on whether
Speaker 1: it's games or films or music.
Speaker 3: I mean, I love music and TV dramas and music,
Speaker 3: but I cannot play game. To be videos, I can't
Speaker 3: play but very you know, the primitive level, and.
Speaker 1: Sony is a major producer of the music and film
Speaker 1: that to Toki San loves.
Speaker 3: We are doing good business in the film and of
Speaker 3: course you know some films are vlatile, but you know
Speaker 3: they try to avoid such PARTI TI and we developed
Speaker 3: the portfolio for to make a film and sometimes we
Speaker 3: do a deal with a big distributors such as a Netflix.
Speaker 1: Anime is something many of us identify with Japan. Yeah,
Speaker 1: as almost uniquely Japan has it gone global.
Speaker 3: Yes, now defentually thanks to the streaming big streaming platform.
Speaker 3: Now anime is simultaneously distribute you know, the the at
Speaker 3: the same time worldwid basis that helps you know, the
Speaker 3: animal glogle hits as a law and the you know,
Speaker 3: the that enable to mitigate the piracy risk control.
Speaker 1: As part of its push toward content, Sony has made
Speaker 1: major investments in music catalogs, building on traditional strength and
Speaker 1: that's where Apollo came in.
Speaker 3: It's quite important because you know, the the each capital
Speaker 3: resources have a different disc capitite as well as a
Speaker 3: different time horizon. And as we diversify our business and
Speaker 3: we need to acquire many asset classes and it's a
Speaker 3: you know, the we can find out the best fit
Speaker 3: of the you know, the capital, investment and asset class.
Speaker 1: Is that why you edited a relationship with Apollo for
Speaker 1: music catalog because you needed a long term time.
Speaker 3: Horizon exactly, and the music capital is a relatively low
Speaker 3: risk and lord E Town, you know the asset class,
Speaker 3: and that really fit to the you know the like
Speaker 3: private credit and you know, need a long time for
Speaker 3: item as a capital and outside that's a great example.
Speaker 1: It turns out that Totky Sun has a long time
Speaker 1: horizon in his music tastes as well. His favorite artist
Speaker 1: is a British rock band from the nineties, one that's
Speaker 1: recently gotten back together and one of that over the
Speaker 1: years has worked with Sony in distributing some of their records.
Speaker 1: Do you have a favorite artist?
Speaker 3: I actually joined the concert of the Oasis and in
Speaker 3: Tokyo and they have a dome concert two days and
Speaker 3: I didly enjoyed. And it's after twenty years. They had
Speaker 3: a concert in Japan and outofang are there and of
Speaker 3: course I heard old days music. Aushle is a really good,
Speaker 3: GrITT fun.
Speaker 1: From Automotive Atonomy. Japanese corporate leaders are changing the way
Speaker 1: they do business and finding new ways to capitalize those
Speaker 1: changes with the help of firms like Apollo coming up.
Speaker 1: Is Japan truly different? We take a fresh look at
Speaker 1: what we thought we knew about Japanese culture. This is
Speaker 1: a story about bunka. It's a Japanese term for culture.
Speaker 1: The Japanese have developed their unique culture over one thousand years.
Speaker 1: It's a culture that has informed the way Japan does business. Now,
Speaker 1: Japan is pursuing a new economic strategy. Peter Drucker famously
Speaker 1: said that culture eats strategy for breakfast. So what will
Speaker 1: happen as Japan's new economic strategy comes up against its
Speaker 1: ancient culture.
Speaker 8: The economic growth of Japan has been the most spectacular
Speaker 8: in recent history, a fine example of what a system
Speaker 8: of pre economy can accomplish with wise planning, determination and
Speaker 8: hard work.
Speaker 1: Many of us have an image in our minds of
Speaker 1: Japanese business traditions, like the groups of interrelated companies known
Speaker 1: as Caretsu's and the lifestyles of the salary employees who
Speaker 1: worked at them.
Speaker 6: Under currents of change have repositioned where Japan stands today.
Speaker 1: Maria Solis of the Brookings Institution says, the image of
Speaker 1: the salary man was always a bit overdone.
Speaker 6: The traditional image we have of the Japanese employee, the
Speaker 6: salary man is applied really to just segment of the
Speaker 6: working population. The idea that people would stay in the
Speaker 6: same job all their careers, and that there was this
Speaker 6: steady progression, and that they would be extremely loyal to
Speaker 6: their company, they would not be seeking for opportunities. But
Speaker 6: many other workers in Japan who operated, who were employed
Speaker 6: by smaller companies, never had that level of predictability. We
Speaker 6: believe that something like thirty eight to forty percent of
Speaker 6: all employees in Japan are in this category of non
Speaker 6: regular workers. The corporations and the government have also tried
Speaker 6: to bring more flexibility to employment practices, and we begin
Speaker 6: to see that many employees now are doing these lateral
Speaker 6: changes and they do not expect to stay in the
Speaker 6: same corporation all of their careers. So I think that
Speaker 6: that's adding again more dynamism to the Japanese labor market.
Speaker 5: The culture is changing here.
Speaker 1: On me of the Tokyo Stock Exchange politely suggests that
Speaker 1: the idea of the salaryman is at the very least
Speaker 1: out of date. There was the salaryman that we all
Speaker 1: talked about when you had a long term job, fairly quiet,
Speaker 1: not a lot of races, but it was a lot
Speaker 1: of stability. This is a different world.
Speaker 5: Well, yes, that's the kind of stereotype, kind of image
Speaker 5: of the Japanese workers. But it's amazingly since twenty fifteen
Speaker 5: or sixteen, about one out of three new a freshmen
Speaker 5: to the companies are thinking to leave the company to
Speaker 5: join their startups. Is a one of the most popular
Speaker 5: jobs the university students to choose. Used to be like
Speaker 5: a bureaucrats or consultants or investment banks, those kinds of things,
Speaker 5: but now there's a number of students or you know,
Speaker 5: the freshmen it's trying to leave the current company and
Speaker 5: join the new start ups.
Speaker 1: And large Japanese companies are relying more on those startups
Speaker 1: attracting new college grads. Companies like Masashi Nagayasu's Panasonic Automotive.
Speaker 7: Our business model or profit model need to be also changed,
Speaker 7: so we need to have more capability to partnery with
Speaker 7: many kind of industrial or automotive industry sectors, including startup companies.
Speaker 1: Even as Panasonic Automotive changes the way it does business
Speaker 1: and with whom it works to preserve the best of
Speaker 1: the larger Panasonic culture, a culture established by the founder
Speaker 1: of its predecessor company, Konosuki Matsushita at.
Speaker 7: The same time. Okay, Matsusa is our own company is
Speaker 7: found This is no change forever. And the parasonit is
Speaker 7: almost one hundred ten years history, but Parasonian Automotive has
Speaker 7: eighty years history.
Speaker 5: So we're still put importals on our founders.
Speaker 7: You know, philosophy in our mind and this is our backbone.
Speaker 7: This won't change, but otherwise we can change.
Speaker 1: One of the things you're changing is the name of
Speaker 1: the company. Yess how do you employees a Panasonic Automotive
Speaker 1: respond to changing these Panasonic is and iconic?
Speaker 7: Yeah?
Speaker 8: Yeah, you know.
Speaker 7: You know I've been working for a parattery for forty
Speaker 7: two years. Yeah you know, yeah, yes exactly. Some people
Speaker 7: ah expressing, how to say it, kind of nostarigic, you know,
Speaker 7: feelings right, and first response from them are not very
Speaker 7: positive frankly some of them. But however, to speed up
Speaker 7: the process of transforming a company and of course profitabilities
Speaker 7: growth strategy, we need to show the evidence to the employees.
Speaker 7: I do believe they would change the mindset to a
Speaker 7: polictive way, So that's why I have to show the
Speaker 7: result to the employee to make it everyone be positive.
Speaker 7: Way we will speed up the process of the transform
Speaker 7: of ourselves to fit to the market at a global basis,
Speaker 7: so customers a response are quite positive.
Speaker 1: Over At Sony, CEO Hiroki Totoki has a similar goal
Speaker 1: of communication with employees as he continues his company's transformation.
Speaker 1: What you're describing is a very different Sony from what
Speaker 1: it was twenty years ago. How do you bring along
Speaker 1: Sony employees to this new world?
Speaker 3: That's a great question, and that you know, even the
Speaker 3: Portofolio shift is a right thing from an investors point
Speaker 3: of view, and the the business has been done by
Speaker 3: the people and if you you know, the look down
Speaker 3: to the ground, people are very commit to the current
Speaker 3: business and the current job and to shift that job
Speaker 3: and that business domain is not really important. But as
Speaker 3: a CEO, most important thing is how to pathway with rationale.
Speaker 3: This is the right thing we have to do. That
Speaker 3: kind of communication is quite important to the employee. We
Speaker 3: have to transform the entire Sony otherwise we can survive.
Speaker 3: And you know, sometimes that transformation is very severe, but
Speaker 3: we have to do that.
Speaker 1: Over and above the experiences of individual Japanese company leaders
Speaker 1: and the experiences of Japanese workers, there's a larger cultural
Speaker 1: question whether the conservatism we've seen in Japanese markets and
Speaker 1: investors is imprinted or whether it has been the result
Speaker 1: of macroeconomic forces which have changed A Uita of Apollo
Speaker 1: observed the back and forth between economics and culture during
Speaker 1: his years at Goldman Sachs and National Pension Fund GPIF.
Speaker 1: For thirty years or so, Japan has been perceived as
Speaker 1: sort of low risk, low return. Yes, as you say,
Speaker 1: cash is king yeap, and it's been thought maybe that's
Speaker 1: part of the Japanese culture. Is that not right, that
Speaker 1: Japanese are not inherently conservative.
Speaker 4: I don't think so, because when I started in my career,
Speaker 4: DDP was growing, you know, a high single digit and
Speaker 4: the tenure yield was of six percent. So I don't
Speaker 4: think this is the cultural things. People based gott to
Speaker 4: make a rational decisions with the macro environment because the
Speaker 4: cash is the best assets to own compared to the others,
Speaker 4: and now things are different. So I think if people
Speaker 4: make a rational decision, we go to rational decisions. I
Speaker 4: think people are open for various ideas on the new
Speaker 4: finance space.
Speaker 2: There's nothing like three percent inflation to get people to
Speaker 2: think differently, and we have our work cut out for us,
Speaker 2: as do some of the other large providers of private
Speaker 2: market investment opportunities. But this is about education. This is
Speaker 2: not about whether they will move. They are going to move.
Speaker 2: The Japanese institutions are moving, and so it's just a
Speaker 2: rate of change, and we're now we're seeing an inflection
Speaker 2: point in that rate of change, spurred on by higher inflation.
Speaker 1: That does it for us here on Wall Street. We're
Speaker 1: coming to you from Tokyo. I'm David West, and see
Speaker 1: you next week for more stories of capitalism.