Initiated by former Prime Minister Shinzo Abe, Japan is in the early-to-middle stages of a profound, government-supported shift in corporate governance. This is compelling historically inefficient companies to improve capital allocation, unwind cross-shareholdings, and increase shareholder returns.
Current credit markets, both public and private, offer poor risk-adjusted returns due to tight spreads and abundant capital. However, a 90%+ reduction in dealer capital since the GFC means the next downturn will likely feature extreme illiquidity and distress.
The speaker emphasizes finding value in areas overlooked or disliked by the broader investment community. This is exemplified by the deep dive into Japan, a market many have written off due to past negative experiences and misconceptions about its debt and demographics.
The strategy involves finding specific, dislocated markets where risk is fundamentally mispriced due to structural shifts or catastrophic events. The Florida wind reinsurance market post-Hurricane Ian is a prime example, where premiums have surged dramatically, offering attractive returns for those willing to underwrite the risk.
Keep pulling the thread on Herb Wagner.