Hong Kong hedge fund manager wins big at Nintendo

Seth Fischer’s $ 1 billion Oasis Management stands to make tens of millions of dollars after a three-year campaign to push Nintendo Co. into mobile gaming. The success of “Pokémon Go,” a new smartphone game part-owned by Nintendo, has boosted the Japanese company’s shares by more than 50% in the past week, adding over $ 10 billion to its market capitalisation.

Fischer, who had about 4% of his fund in Nintendo at the end of June, is one of a growing cadre of foreign activist investors making money by pushing Japan’s sleepy corporate sector to be more shareholder-friendly.

US-style activist campaigns like Fischer’s, which include critical letters, public presentations of alternative strategies and private prodding of management teams, are still uncommon in Japan, where news that a company is creating an investor-relations department has been known to send its stock soaring.

However, under Prime Minister Shinzo Abe, Japan’s government has recently encouraged companies to become more responsive to shareholders.

There are signs that activist investors are finding more success in Japan of late. Brash New York hedge-fund Third Point in April won a boardroom battle to replace the 83-year-old chief of the 7-Eleven empire, owned by Japan’s Seven & i Holdings. Loeb wanted the company to shed its big-box retailers in Japan and focus on its core convenience-store franchise globally. Loeb had earlier urged changes at Japanese entertainment giant Sony. He was rebuffed, but profitably sold his shares in Sony.

Nintendo said its push into mobile gaming is part of its own strategy.

“Our decision to tap into the smartphone game [market] was not due to any particular advice from any particular investors,” a Nintendo spokesman told The Wall Street Journal in response to questions about Oasis and the role of outside shareholders.

Fischer, 44, launched his public campaign for a shift in strategy at Nintendo with a speech at the Hong Kong offshoot of the high-profile annual Sohn Conference on June 6, 2013, after building an initial stake in the company.

Fischer urged Nintendo to evolve from its console-focused business toward mobile games. He estimated a credible move into mobile gaming could boost the company’s share price by between 97% and 240%. At the time the company’s cash balance accounted for two-thirds of its market value, which had been dragged down by a drop in sales.

The opportunity for Nintendo to move into mobile gaming was “so obvious, but nobody was talking about it,” Fischer said in an interview on Tuesday.

“It’s a different mentality from Silicon Valley, where people have their quirks but at the end of the day tend to act rational,” he said. “In Japan analysts are looking at what the companies are doing and not what they could do.”

He says that Nintendo’s management had been too focused on protecting the experience of its hardcore existing gamers by selling its games through the company’s specialised hardware – forsaking a much broader potential audience.

In a February 2014 letter to Nintendo’s then-chief executive, Fischer argued “the same people who spent hours playing ‘Super Mario,’ ‘Donkey Kong,’ and ‘Legend of Zelda’ as children are now a demographic whose engagement on the smartphone is valued by the market at well over $ 100 billion.”

“Pokémon Go” was developed by Tokyo-based Pokémon Co., which is 32%-owned by Nintendo, and California-based Google spinout Niantic Inc. The game lets players scour real-world locations for characters such as chubby yellow monster Pikachu. “Pokémon Go” is free to download, but offers in-app purchases to help players capture the Pokémon creatures. Nintendo wasn’t directly involved in developing the game but owns roughly a third of Pokémon Co. and an undisclosed stake in Niantic. Fischer estimates that between 40% and 50% of revenue from the game will flow through to Nintendo.

Fischer won’t be the only big winner. Los Angeles-based Capital Group owns 22% of Nintendo’s stock, according to data from S&P Global Market Intelligence. Capital Group declined to comment. Other global investors in Nintendo include San Francisco-based “value-oriented” mutual-fund manager Dodge & Cox and BlackRock.

Fischer, who invests nearly two-thirds of his $ 1 billion fund in Japanese companies, is no stranger to activist campaigns. He has launched a campaign to get Japanese electronics maker Kyocera Corp. to return more cash to shareholders and been an active investor in US-based toy maker Jakks Pacific.

Oasis Management was founded in 2002 by Fischer after working at Highbridge Capital Management. The firm’s flagship funds have generated net annualised returns of 18% through the end of 2015, according to its website.

Write to rick.carew@wsj.com

Takashi Mochizuki contributed to this article, which was published by The Wall Street Journal

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