In our interview below, Gifford Combes and Paul ffolkes Davis discuss how decades of caution in Japanese boardrooms are finally giving way to reform, and why that creates a rare opportunity for value investors.
You don’t have to take Nippon Active Value’s word for it. As Gifford Combes points out, Warren Buffett has said he’d invest $100 billion in Japan if he could. The world’s most famous value investor sees what NAVF’s managers have been saying for years – a stock market full of undervalued companies sitting on mountains of cash.
The roots of the opportunity go back to Japan’s extraordinary bull market of the 1980s. Driven by cheap debt, property speculation, and record-low interest rates, it created valuations so extreme that the grounds of the Emperor’s Palace in Tokyo were once worth more than the entire state of California. When the bubble burst in 1989, it left a generation of corporate managers traumatised.
As Paul ffolkes Davis explains, Japanese companies that once lived on leverage became obsessed with hoarding cash. Decades later, that instinct persists. Many companies still hold years’ worth of revenues in the bank earning nothing – a habit born from fear that capital would dry up again. Ironically, today Japan’s banks are overflowing with liquidity and struggling to find borrowers.
That mismatch – corporate conservatism meeting capital abundance – is where NAVF steps in. Combes and ffolkes Davis formed the trust in 2019 after recognising how far Japanese valuations had drifted from fundamentals. Even after years of reform, around 40% of listed Japanese companies still trade below book value. For comparison, only one company in the S&P 500 does.
Change is happening, but slowly. The Tokyo Stock Exchange has told companies to take action to lift their share prices to at least one times book value. At the same time, government funds – which collectively own about 10% of the entire market – want stronger returns to support pensions. That’s pressure from above. NAVF adds pressure from below, through constructive activism.
NAVF’s approach is measured but firm. The team pushes boards to optimise balance sheets, improve capital efficiency, and pay out excess cash. It’s not about financial engineering for quick wins; it’s about changing how Japanese executives think about shareholder value after decades of defensive management. As ffolkes Davis puts it, the goal is to help these companies “raise their return on equity and live happily ever after.”
They’re not alone in that mission. Japan has seen a rise in domestic activist investors who can act more aggressively than overseas funds. These local players can take controlling stakes and move faster, while foreign investors like NAVF bring discipline, transparency, and global accountability. The combination is accelerating reform in ways that would have been unthinkable ten years ago.
What emerges is a Japan that’s beginning to unlock its own potential. A market once paralysed by fear of risk is slowly learning to reward it. For NAVF’s investors, that represents both a contrarian opportunity and a rare alignment – a value story supported by cultural, regulatory, and institutional change. As Combes says, “With the modest amount of capital we have, there’s a huge range of options.”