#54 Gabriel Colominas Bigorra - Japan's Hidden Opportunity

The Nalu Finance Podcast

What if the best opportunities are hiding in plain sight — in Japan? Most wouldn't look twice at Japan's small-cap market. But for the few who do and who do the work, the payoff can be substantial.

In this episode of the Nalu Finance Podcast, I speak with Gabriel Colominas Bigorra, Fund Manager of the Japan Deep Value Fund, a vehicle built on over a decade of on-the-ground engagement with one of the world's most structurally undervalued equity markets.

We unpack why Japan remains deeply misunderstood by Western investors, how a landmark governance reform is reshaping corporate behaviour, and where real mispricing still exists in small and micro-cap stocks for those patient enough to find it.

What’s Inside:

• Japan's mispricing — why it persists and where to find it. From companies trading at 2x to 5x free cash flow to the structural inefficiencies between the Nikkei and the broader market

  
  

• Governance reform and the activist wave. How the Tokyo Stock Exchange's push since 2023 has reshaped corporate behaviour, shareholder dialogue, and the playbook for constructive engagement

  
  

• Investing smarter with AI — how a specialist fund manager filters signal from noise. Gabriel shares how his information diet has evolved away from social media toward curated sources, and how he now uses tools like NotebookLM and Alpha Analyst
  

Why Listen:

If you want to understand why Japan's equity market is still structurally undervalued, how patient capital and relationship-driven engagement actually work in practice, and what governance reform really means for returns, this episode is worth your time.

🎧 Listen Now On: Apple Podcasts | Spotify | Youtube | Podomatic

🎙️ Transcript: Gabriel Colominas: 00:01 The Japanese stock market for many years hasn't looked at the stockholders a lot, and now they are looking at the stockholders. The thing has completely changed.

Sponsor: 00:18 This podcast is powered by vestr, the engine behind Active Management. vestr is a Switzerland-based fintech startup that provides software for issuers of actively managed certificates to automate their value chain fully. Visit vestr, V-E-S-T-R dot com to schedule a meeting with an expert and to learn more about vestr.

Stefan Wagner: 00:42 Welcome to the Nalu Finance Podcast. Today's guest is Gabriel Colominas, fund manager of Japan Deep Value Fund. He's a specialist in uncovering opportunities in one of the world's most misunderstood developed markets. Gabriel has spent over a decade investing in Japan, building a deep edge through on-the-ground engagement and disciplined value investing. In this episode we explore why Japan remains structurally inefficient, how shareholder attitudes have changed, and where real mispricing still exists in small and mid-cap stocks. We will also discuss the impact of governance reform, the rise of activism, and what meaningful dialogue with Japanese companies actually looks like. Gabriel walks us through the philosophy and risk profile of the Japan Deep Value Fund and how it differs from its more concentrated engagement-driven samurai fund. Finally, we zoom out to get some personal insights from Gabriel. Let's get started. Welcome to the podcast, Gabriel.

Gabriel Colominas: 01:41 Thank you, Stefan, and thank you for having me today.

Stefan Wagner: 01:44 Let's start. What first pulled you into Japan and what is the reason that you stayed in it for more than a decade?

Gabriel Colominas: 01:52 It's a good question. Japan always has been a big market. In some moments, it was the biggest market in terms of market capitalization. Since the 90s, this has changed and has been US and China on the first and second position and third. We realized that there was lots of companies in Japan, especially small-cap, micro-cap companies, trading at super low valuations. We were seeing companies trading at 2x free cash flow, 3x free cash flow, 5x, 4x free cash flow. So really compelling valuations in a moment where in US and in Europe valuations were on the rise and where 15 times free cash flow was normal in, I don't know, 2012 or 2010. Now it was 20 times cash flow, 25 times cash flow. Quality companies start to trade close to 30 and you know that after 2015, 2016, valuations only get up. So valuations were going up significantly in Europe and in Japan there was this big opportunity.

Stefan Wagner: 03:02 And what sort of has changed when you look back from 2006 into versus today sort of?

Gabriel Colominas: 03:08 Yeah, a lot has changed, especially in terms of culture, awareness of corporate governance and strategy and perspective. During many years, Japan had the biggest bubble that humanity has ever seen in the 90s or in the 80s. Since then, it has been the biggest and biggest or at least the longest crisis a country has seen because the stock market went down from the 40,000 points to, I don't know how many, to 10,000 points or less in 2012. So this big trauma gets put into the mentality of all the managers, all the corporate managers, all the owners of companies.

And they start to create the largest cash reserves in history, in Japan and probably in part of the world. And they were not like investing or allocating or doing M&A or doing nothing with the cash, just accumulating cash for the sake of accumulating cash, because it was a margin of safety. So during many years, the Japanese mentality in corporate, which is very conservative, was only doing CapEx. but saving a lot of money and accumulating money, low dividends, and everything, right? And when we started, that was the mentality. And it has been like that until 2023, we say.

Stefan Wagner: 04:49 2022, 2033.

Gabriel Colominas: 04:50 Yeah, 2023. Because there has been a super big reform pushed by the Tokyo Stock Exchange chairman, Hiromi Yamaji. And he wants to change completely the Japanese stock market, which for many years hasn't looked at the stockholders a lot. It only takes care of the stakeholders and the evolution of the company in terms of surviving, right? And now they are looking at the shareholders and meeting shareholders, because I can explain a lot of things about meeting companies in the past and meeting companies now, and things completely change.

Stefan Wagner: 05:32 I mean, when you meet the companies in Japan, sort of, how does Japan compare to sort of US or UK or Europe?

Gabriel Colominas: 05:42 It's a very good question because culturally there are lots of difference. I think that in the US and the UK, I feel it's more transactional and linked to the capital that the market is providing to them. So they look at the market as a sort of a capital. And when they meet investors, I think what you feel is that they are looking at the meeting as a transaction. I'm giving you information in order for you to invest in my company, and I will have better access to capital. In Japan, as a shareholder, as a shareholder, you're not part of a family of the traditional shareholders of the Kiretsu or whatever. You're an outsider. You're not an insider. So yeah, that's very interesting, right? So they don't see you as a part of your company, especially if you are from outside Japan, right? They didn't see you as a shareholder if you don't gain the right to be a shareholder. If you are not contributive in terms of long-term investing, doing proposals to the company that make sense. Caring, like you have to demonstrate that you care about the company. They don't need capital. They need to get rid of some capital in part, right? Or do something really interesting with this capital. Share my dividends, buy a competitor, whatever you want, but please use this capital, right? But the question is, like, they have a cultural good reason to hold all this capital, which is the big drama that we're experiencing.

Stefan Wagner: 07:23 And is there a noticeable difference also how the relationship is depending if the company is sort of founder-led or family-influenced?

Gabriel Colominas: 07:32 Yes. In general, founder-led companies are younger companies and are more open companies in terms of conversation from the shareholders.

Stefan Wagner: 07:42 Is there sort of a common misunderstanding among investors about Japan that is worthwhile highlighting or that might even result in mispricing or missed opportunities?

Gabriel Colominas: 07:54 Well, something that is not better understood by investors is that they think that Japan is not growing. As population in Japan is shrinking, the total GDP is growing. slowly, right? Especially after that big crisis. But the GDP per capita is growing significantly. So if you take the GDP per capita in Japan and you compare it to the US, it's not that different, right? Another thing that maybe they didn't understand is that the Japanese stock market, it's not the Nikkei. And the valuations are super different. The companies are super different.

Stefan Wagner: 08:32 And I mean, you mentioned now a few times that sort of this, the push of the Tokyo Stock Exchange since 2023 as a catalyst and how the companies behave. So I presume you're now seeing more activism a little bit in Japan. Is that friendly engagement, constructive, or does it even maybe sometimes get confrontational and where do you try to sit with your approach?

Gabriel Colominas: 08:57 Yeah, very good question. The number of operations in activism has grown a lot in the last years. A combination of factors are there. Of course, the push by the Turkish Stock Exchange is an element of that. The number of companies with net cash available is also something that is driving a part of this activism. And you see a lot of Friendly activism and engagement, so really engaging with the company and contributing to the company and being an investor is the only way of engaging, the only way of activism.

Stefan Wagner: 09:41 And what kind of corporate actions do you manage to get them to do in a sense and how much upside is in there? Is it dividend? Is it buybacks? I think you mentioned buying a competitor or something.

Gabriel Colominas: 09:55 Yeah. When we approach engagement in Japan, we always say that we have to go from the simplest and easiest corporate actions first to the more complex and difficult to execute later, right? So we are now in an initial phase where we are proposing simple things, simple corporate actions. The first that we usually propose are about liquidity. And it's simple because there's only two things to do. First of all, it's doing a split. Because in Japan, there's something very, very interesting, which is that each trading block, each trading action, it's at least 100 shares. So we think it's a very proper measure to do in a split and to get your share from 100 euros or from 200, 500, 600, whatever, 1,000 euros, to 100, to 50, to 40, to 60 euros, right?

And the second one, we propose to the shareholders to sell some shares to retail investors only. And you sell it at a discount. only to retail investors. So these measures are the ones that we propose first. And secondly, once our relationship with the company creates some trust and understanding of both parts, we start proposing dividends, increasing dividends, and especially increasing buybacks. Because as they have a lot of cash and valuations are low, buybacks are the perfect measure for them. And for that, we improve in terms, we're continually improving the proposals and making new proposals related to corporate governance, related to investor relations.

Stefan Wagner: 11:54 So you're actually slightly consultancy led approach. I mean, yes. So that literally leads me to my next question. So what is the philosophy of the deep value fund and the portfolio and the risk profile? It's sort of in the sense, what does a stock have to be?

Gabriel Colominas: 12:11 Okay, that has changed slightly since the beginning, because at the beginning, we had a really deep value profile, right? So companies trading super low, traditional business, cash generation. Cash generation for us is the key. So we always focus on that. And once we have a company with a traditional business that we usually understand, and we invest in that companies looking for five to 10 year investment.

We have some super quality companies, but from 40 companies that we have currently, maybe we have 10 of them that are amazing super quality companies, growing and being a champion in their segment or in their niche. We will have maybe 20 that are companies that we said it's standard companies, right? So it's growing 2, 3, 4% stable cash generation or improving margins, but traditional business. And we have 10 companies that are maybe more tech profile companies, more software, more platform companies. The average market cap of our Japan Deep Value portfolio is around 400 million euros. So there are really small companies.

Stefan Wagner: 13:31 Now we have been mainly talking about the Japan Deep Value Fund. There's another one that's also done which is called the Samurai Fund. What is sort of the difference to what we've been talking about and why did you decide to set that one up as well in addition?

Gabriel Colominas: 13:48 So after 10 years investing in Japan and nine years with the fund, we decided that we want to launch a new fund, which is the one that we will launch in this 2026, which is the Samurai Fund. And this Samurai Fund, it's an engagement fund that will focus on very specific opportunities in companies where the owners don't have a full control. So there's no companies with a family owning 40% of the shares. because i want to push a corporate change and corporate actions in this company's in our engagement contracts with way but. Unlocking and creating value there potentially also management change as well in general this company is available manage in terms of the business.

The problem usually is the capital. So what we will do once we launch this new fund is take some specific opportunities where we can create a position of force, taking 10 to 20% of the shares of these companies and having a period of three to five years of value unlocking and value generation. and exiting the company in 7 to 10 years, right? So this new fund will be a fund which will be only for institutional and family investors. The other is a fund which is for everyone, it's for retail investors.

Stefan Wagner: 15:13 Now, something we haven't talked about, but I guess that's important for both of the funds is, you know, every investor will probably think about it, is that, yes, I'm happy to invest in Japanese stocks, but I'm taking the FX risk. How do you approach that one? Do you hedge it or what's your view on that one?

Gabriel Colominas: 15:32 It's a very good question. Since the beginning of the fund in 2016, we completely hedged our position in Jens.

Stefan Wagner: 15:41 Yeah, you're not claiming that you know what's going to happen there. You don't want to spend your energy on researching other one often. It's driven by, you know, whatever the central banks are deciding to do, which actually leads me a little bit to my next sort of more personal question. How do you sort of manage your own information diet? There's probably way more information out there than you can ever actually digest, but how do you organize your life around this? Which conversations, which sources do you use?

Gabriel Colominas: 16:14 In terms of sourcing information, it has changed a lot because I think in the past, Twitter, now X, was the best source of information. But Twitter has changed a lot in terms of algorithms and everything, and there's a lot of noise currently, I think. In Twitter, I continuously do use it, but I use it less. And now I research specific sources of information from Japan, for Europe, for companies, for markets, and I get these in the mail. I think you're going to ask that if I use any AI tools.

Stefan Wagner: 16:53 Yeah, exactly.

Gabriel Colominas: 16:55 All of them. For example, I have, like for ChatGPT or Gemini for summary, I use it a lot. To research information, I use NotebookLM, which is the Google tool to study. because you can put all the reports about the company and ask questions, and the only source that we'll get is the information you put there. Also recently, a guy that has been working with us, a brilliant guy, has developed his own tool to analyze filings. And he started with the US and with Japan. It's called Alpha Analyst. He's going to commercialize that this year. And we've been using Alpha Analyst for many months now. And it's amazing because we have access to all the filings from Japan translated into English. And we can search and use, yes, and use an AI chat, which is based just on ChatGPT. Excellent.

Stefan Wagner: 18:02 Now, you read a lot and I suspect you have read quite a few finance books, but is there a favorite one and why is it your favorite one?

Gabriel Colominas: 18:14 I think I have some of them that are very, very good. One I always recommend is Capital Returns from Edward Chancellor, which is from Marathon Asset Management Letters. It's a compilation of Marathon Asset Management Letters. And I like the books that helps you to develop specific investing frameworks, right? So thinking about the capital cycle in industries is something that all the managers and investors need to do. And this book helps a lot in framing you in terms of understanding capital allocation and capital cycles.

One that I liked a lot, let me think, One that I liked a lot was The Ascent of Money by Niall Ferguson, which is, for me, the greatest writer of financial history. He's a great researcher and journalist, but The Ascent of Money is great, and I read it many years ago, and it's amazing to understand all the history of the evolution of money. Another that i really like it it's it's it's it's for sure in English it's translated in English but it's the first book written about the stock market. It's confusion the confusion is confusion of confusions in English. And it's amazing because you see that the same things apply nowadays because it's a book about human nature in trading.

Stefan Wagner: 19:47 I mean, I always give this option to the people. I've been asking you a lot of questions. Is there anything you would like to ask me?

Gabriel Colominas: 19:55 Yeah. Something that I always think about people that run this type of good quality content. So when I find someone like you that is taking his time researching and understanding and finding interesting topics as you do, I always want to ask, what was the most surprising discovery that you made thanks to the podcast?

Stefan Wagner: 20:18 Yeah, I've been extremely lucky of getting a lot of really good people on the podcast and they spend their time doing it. And a little bit selfishly, I originally set it up a little bit because it's sort of my way of learning. I like to keep on learning, I read a lot as well, but I find having conversations with people, also that's what I'm trying to do is pass on knowledge from people who have done it already and people can learn from like you and many other people. But I think probably two really ones that stood out quite a bit always when people asked me. One was I interviewed Lord Stevenson in the UK. I think he was the chairman of HSBC as well.

And he was already at that point in time significantly older than any of any other, but he was still so open-minded and interested in learning and happy to share knowledge and i asked him the question on you know how do you do on one hand you know money you trying to find the best opportunity but the other hand. Do you want to invest in a company that you don't agree or a regime it's in a country that we don't exist and he gave me a really good answer on that one how you should see that and you can learn you should judge that way that easily that was really open. And the other one was with somebody who was involved in the wire card saga on the accounting and auditor side. Because you know because obviously still ongoing but everybody's looking for somebody to blame and. I loved it basically because many people said, yeah, but the auditor should have known this.

And his answer is like, guys, for the last three years, 200 people, Secret Service, police, and everybody else trying to find these people and the money, and they can't. How can we expect to do that? And it really phrased it really nicely for me that often people misunderstand what actually the responsibility of an auditor is and what actually their capabilities are. And, you know, I've been cynical as well, because I was also slightly privy to some information and some of my jobs regarding Madoff and other things. And, you know, there were people pointing it out. There wasn't, couldn't be, but, you know, nobody wanted to believe it.

And, you know, and as best in the Wirecard case, even the German regulator was trying to go after the FT journalists. So, yeah, that was probably two of the really interesting ones. I always enjoy it. I'm sort of a half value investor always. One of the first ones I did with an ex-colleague and friend, and I'm actually invested in a value investor as well. I always find the logic and the rationale that value investors usually apply is a very solid foundation that makes a lot of sense to me and can be used in many aspects of life.

Gabriel Colominas: 23:30 Okay. Okay. Very interesting. Very interesting.

Stefan Wagner: 23:33 So I enjoy these conversations with people like you as well. So that's a compliment. Last question. If people like what they heard, how is the best way to reach me?

Gabriel Colominas: 23:45 Well, in Linked-In, I'm very open. I answer most of the messages that I received. Even if I'm not interested in something, I just say, no, thank you. But I read everyone on LinkedIn.

Stefan Wagner: 23:59 Excellent. Thank you very much for joining me today.

Gabriel Colominas: 24:04 Thank you. Thank you. Thank you for having me. It has been a really, really big pleasure. Thank you, Stefan.