From Investment Banking to Impact Investing – Interview with Roland Thompson

An Investment Banker’s Views on Japan (and Asia’s) Property Market, Global Economy, Life – and How to Use Money to Make the World a Better Place

 

Japan Real EstateRoland Thompson (pictured on right) is an Australian-born senior investment banker, who has been living and working in Japan for the last three decades. Having recently left his position of the last 15 years as director of North Asia for Credit Suisse, one of the world’s biggest and most profitable banking groups – and also one of the only financial institutions to emerge all but unscathed from the global financial crisis of 2008 – Roland now focuses on his new passion – impact investing – which he views as the one of the current century’s most significant and influential paradigm shifts, as far as global and cross-border investment is concerned. 

Our Asia-Pacific Manager, Mr Ziv Magen, caught up with Roland during one of his recent trips to Tokyo, and brings us the following interview.

***

Having delved deeply not only into equities, mergers & acquisitions, debt and leveraging but also extensively into real-estate and related infrastructures, I found Roland’s input and take on current economic and social affairs of great interest. At a recent lunch meeting I wondered if he’d agree to let me “quote him on that”, to which he kindly consented, and so I thought I’d put together a few of his opinions and views on current and potential future events of the next few years, along with tidbits of his own life and personality, which are woven into his character and philosophy, just to give you a sense of the man behind the words.

Roland – from Australia to Japan, from harsh and grueling martial arts training with one of Asia’s (and the world’s) most prominent masters to your own boutique dojo, and now from one of the world’s biggest and most profit-oriented investment banks to the almost contradictory field of impact investing. Has this sort of diverse interest arc always characterized you as a person? Tell us a bit about your own personal life journey, and how you came to be where you are today.

Yes it has, as a matter of fact. I grew up as a child in Australia, New Zealand and other Southeast Asian countries. Eventually, I moved to Japan and settled in Tokyo where I have lived for the past 26 years. This diversity of cultures and experiences has provided me with a rich range of interests, from an early age, that today still keeps evolving. Whether as a business professional or in my personal life, I have been fortunate to have a wide range of experiences and lessons to draw from – which have all helped me throughout my career.

What drew you to Japan in the first place? Are these the same things that keep you here today?

Both business opportunities and the culture drew me to Japan. I arrived in July, 1987 and at that time the economy was rapidly accelerating with asset prices, both real estate and stocks, increasing at 5~10% per month. I was drawn into the confidence and excitement of the now famous Japanese asset price bubble, which ubiquitously engulfed all businesses, and to a culture which was like no other that I had experienced before.

And from my first week I quickly realized that without the ability to communicate in Japanese it would be very difficult to succeed. I dedicated myself to become proficient in the Japanese language and to become effective in doing business with the Japanese. Through this journey I developed many skills and gained even more knowledge from daily experiences. I have also had the joy of building a family with my lovely wife Yuko, whom although has bad taste in men, has blessed me with four lovely children. I have also enjoyed the richness within budo (Japanese martial arts) through my Aikido study (pictured below), and by the volunteering and charity work that I do for challenged children in Japan.

Japan Property

 

What sort of areas of expertise did your work for Credit Suisse cover? Run us through some of the tasks you were regularly called upon to perform, if you could.

A typical investment banker’s day would vary greatly, depending on the financial markets, the professional’s position, and the firm’s strategy. During my investment banking career I completed a great many real estate deals, business integrations, compliance and regulatory audits and successfully implemented multi-billion dollar mergers and acquisitions. One area that I always enjoy is the structuring of real estate deals. From my earlier experiences in cross-border investments during the bubble years, to portfolio and assets management, I have dealt with complex challenges such as portfolio re-balancing and restructuring, capital gains and tax maximization, equity and debt issuance and large scale corporate acquisitions.

What are your thoughts in regards to global real-estate investments, and in particular the West-to-East shift in wealth and growth that we’re currently experiencing? What do you see happening in Asia over the next few years, and where in particular, as far as real-estate opportunities lie?

Financial capital will flow to where it will receive the most efficient returns, and the West-East shift is a part of these dynamics – so I expect this will continue, as markets continue to develop in Asia. Of course, opportunistic growth capital will lead the way, but we now see more and more institutional yield driven capital being deployed, as risks become defined and market-based. Location, location, location is just as relevant in Asia as it is anywhere in the world, as the great human migration into cities continues. Supply and demand cycles will again play an important role in the valuation process – this is why I believe moderately leveraged Asia real estate will perform well in the years to come.

Having said that, European markets have started to recover, so opportunities there will slow the net West-East capital flows – but the long-term trend for Asia is bright.

And in Japan, particularly, there are various market segments that I like. These include high-end retail, hotels, logistic facilities and second tier cities such as Fukuoka (pictured below) and Sapporo, with international airports. I also believe that Japan, like Australia, is a market where investment funds can diversify risk within the region, given their low correlation with other Asian markets.

Real Estate in Japan

You sound optimistic, almost buoyant, on Japan’s prospects in face of its mounting debt and coming changes in the regional and global economy. Your belief and faith, which I happen to share, are almost a minority, perhaps because they don’t sell as many headlines as impending doom prophecies. Here are some of those opinions, in a nutshell –

“…huge debt load… competitiveness continues to decline… capital flight… …culturally xenophobic, and with an ageing work force that isn’t being revitalized by immigrants as a result…”.

As extreme and pessimistic as these words may sound, they are echoed by many analysts and couch economists these days. How, in your opinion, should foreigners with Japanese assets, or those considering purchasing such assets, play this market through this particular time frame?

Yes, the Japan debt issue can’t be ignored. And while this is owned by the Japanese, there appear to be few options available for the Japanese government to reduce this to a manageable level. They either take the growth option, which requires more debt, or the austerity option, cutting costs, which would eventually shrink tax revenues. No easy choices there! Japan’s demographics are also exasperating the future outlook, so I can see why so many are Japan-passing. The events surrounding Fukushima are also a heavy cloud over broader optimism and the memory of the previous bubble is still also fresh in everyone’s minds. Naturally, I would expect a lot of caution when considering investing in Japan.

Fortunately, however, Japan doesn’t have to deal with a European Union type organization for its debt problems  – and with the LDP (Japan’s ruling party) holding a majority in the Diet, hard decisions can be made quickly, such as the planned increase in consumption tax, the re-vamping in national pension funds management and the agricultural sector, and so forth. So I see that Abenomics (nickname for Japanese PM’s Shinzo Abe’s fiscal policies), the 2020 Olympics, the Casino bill and the TPP (Trans-Pacific-Partnership – a proposed trade agreement under negotiation by Australia, Brunel, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam) are all improving sentiment – and in terms of real estate, global funds are looking again (did they ever stop?) for prime class A and B buildings. According to a recent Cushman and Wakefield report, yield spreads which are around 200 basis points – and with the stable and transparent market (no Bangkok shutdown/riots yet), Japan offers minimal risk with global diversification.

Japan real estate property investmentI refer you to the Nikkei’s 52 week performance, to further cement the point. At the start of the year it was around 9,487 points, and as of this December 9th, finished at 15,650 points – pretty impressive if you ask me, and something for the doubters to ponder. Nothing like resolving your debt problem, granted, but increasing your assets by 50%! We will still have to see the full year’s data across industries before we can get too excited, but for now at least, the deflation trend has definitely been stopped.

And like any market, investors need to always remain focused on the dynamics within the market segments they are choosing to invest in. Logistic facilities, for example, have done well for the past three years – but with J-REITS now investing more, cap rate compression will continue into 2014. As more investors compete, the challenge will continue to be finding good quality assets.

Real-estate property investments have always played a major part in the portfolios of any significant asset manager or institutional investor. Do you expect this trend to continue in the next decade as well? What new global trends are developing, in your view?

Yes, I do expect this will continue into the next decade and beyond. As a tangible, stable asset, real estate will continue to be attractive to investors. There is, of course, a liquidity cost associated with direct real estate investments, but we all know real estate is a good inflation hedge – and the coming years of Quantitative Easing tapering will push inflation onto everyone’s agenda. There are also a variety of real estate investment products that improve liquidity, so I see this as a lesser concern these days.

And who would have thought that the US would go so close to defaulting on its debt? We are also likely to have another circus early next year, I believe, and I can’t help but wonder how portfolio managers are hedging this risk. The global financial crisis showed that financial innovation, lack of cross checks, poorly policed regulations, and the wrong incentives can exponentially destroy wealth.

Europe is still struggling to recover from the hangover of investment banks achieving 25 to 30% ROEs – now their Tier 1 capital ratios under Basel III at 12 – 18% – investment banks and securities firms target modest 10 to 12% ROEs. Financial capital will still hunt for high returns, so to achieve this less regulated Hedge Funds and the so called unregulated Black Pools are growing, a development that if it continues will undermine the broader stability of the global financial system. I believe in a free market economy, but perhaps the investable hand of John Smith’s now needs the other hand to play a role as well!

Over the coming decade we will see new investment strategies and approaches, some that are not driven by financial returns only, but look to balance these with broad social returns, i.e., the double-bottom-line returns – through Impact Investing. The term Impact Investing appeared around 2008, and is now starting to become more widely used as an investment philosophy/strategy.

Which is where we find you today – tell us a bit about this new initiative of yours, what your immediate and long term goals are, and what kind of players are you looking to network with to make these new ideas manifest.

I recently established my own financial advisory firm, providing consulting services to corporations, family offices, foundations, venture philanthropists and NPOs. We specialize in mission-driven investing through social impact bonds, social development bonds, patient capital, venture philanthropy, social finance initiatives, foundation grants and partnering with overseas development aid organizations.

Japan PropertyThe primary areas of focus are renewable energy, environmental sustainability, real estate, health and education.We are currently delivering 100 MW of solar projects throughout Japan.

I am also leading a working group looking into the development of a Social Impact Bond for the Japanese market, as you know, which will hopefully see your company’s (Nippon Tradings International) real-estate, portfolio management and project management expertise come into play as well – this SIB will aim to improve upon the current conditions and social standing of Japan’s increasing homeless population, while at the same time also re-vamp and add to the facilities currently utilized (or, in some cases, not optimally utilized) in servicing their needs. There are many more projects that we would like to develop, which we hope will gain support in the coming months.

Last but not least – what motivates you, as an individual and investor yourself, in your personal and professional life? What tips, or general words of wisdom can you share with our readers?

For Japanese real estate – know your market, be focused, and nurture your relationships with adequate local partners. In a broader sense, look to improve equality across the globe, increasing sustainability in all areas and truly try to understand your ecology.

Personally, I want to be disruptive and create positive changes towards creating sustainable communities. The Anthropocene Era (the current geological age, viewed as the period during which human activity has been the dominant influence on climate and the environment) is well defined as our responsibility. We need to fix the damage of the past and to ensure a future for our generations to come.

Thanks for taking the time to speak to me today, Roland. I’d be very interested in continuing our collaborations and reporting on them later in the year. These new times we’re living in are certainly shaping up to be exciting and promising for social and environmental projects such as yours. We wish you the best of luck, and look forward to a long and fruitful cooperation between both our companies, as well as on a personal level.

(Fukuoka Pic / heiwa426, Solar Panels Pic / “Green Prophet“, Up Arrows Graphic / “FutUndBeitl“)

This entry was posted in Japan Real Estate and tagged , , , , , , . Bookmark the permalink.