When Kamakura Investment Management Co., Ltd., launched its flagship mutual fund Yui 2101, the asset management firm’s president, Yasuyuki Kamata, was told by many people in the industry, “Social investment is such a naive idea, you cannot make any profit.” Eight years later, Yui 2101, which leverages private capital to earn financial and social returns, boasts an asset under management (AUM) of 38.6 billion yen ($340 million) from more than 19,000 investors as of the end of November 2018.
This collection of articles, sponsored by the Leping Social Entrepreneur Foundation, delves into the cross-sector collaborations driving the latest social and environmental innovations throughout East Asia, including China, Japan, Korea, and Singapore.
Yui means “connect” in Japanese. Yet behind this simple name is the founders’ message of uniting all people who share the same vision of realizing a sustainable society. Kamata started the firm with three partners in 2008. Along with a financial return, Kamakura Investment Management funds seeks investment opportunities in both traditional companies that have a proven track record and social ventures that are typically ignored by investors. Kamakura also acts as an ecosystem by finding ways that companies it invests in can team up to solve Japan’s social problems. For example, Tsumura, a leading pharmaceutical manufacturer of traditional Chinese medicine, invested about 300 million yen ($2.7 million) in 2018 into My Farm, a social enterprise that uses abandoned farmlands to support local farmers.
Kamakura’s fund manager at the time said that he had connected the two companies after identifying areas of opportunities for the two to collaborate: “Companies we invest in share common values and a desire to create something good for a better society.” Along with his colleagues at Kamakura, the fund manager believed that collaboration between large corporations and venture businesses could mutually benefit both firms while also doing good for society. However, such partnerships often fall apart because of a mismatch in production volume required by the large corporation and the production capability of small venture firms.
From the outside, Tsumura and My Farm seem to have nothing in common. Tsumura is a listed pharmaceutical manufacturer that’s been around since 1936, with equity capital of 30.1 billion yen ($276 million) in 2018, while My Farm is an unlisted company that’s been around since 2007, with equity capital of 170 million yen ($1.6 million). Besides supporting local farmers, My Farm is a school that teaches organic, pesticide-free agriculture to encourage people to take up farming as a profession.
Despite their differences, both firms needed something from the other: Tsumura’s goal to expand herbal medicine production locally—most of its medicinal plants are grown in China—was made possible with My Farm’s work in running farms and delivering agricultural education programs in Japan. My Farm is responsible for training and educating Tsumura employees in agricultural management and the cultivation of plants. In addition to training programs, My Farm helped Tsumura access farmlands and the network of farmers that the manufacturer needs for production. In return, Tsumura provided My Farm the financial investment it needed to grow.
“Sharing human talents is a great way to reveal new capabilities,” a fund manager at Kamakura says. “We don’t want to [invest in companies solely with] money. We see our investees and customers as part of our family.” Aside from making financial investments and identifying ways for companies it invests in to work together, Kamakura hosts workshops for investor relations professionals. Kazuma Nishitsuji, founder and president of My Farm, said that Kamakura is the kind of gatekeeper that social ventures need to become “a successful company.”
Similar to Kamakura, Japan Social Impact Investment Foundation (SIIF), founded in 2017, is a cross-sector ecosystem that uses a variety of approaches to support sustainable developments in Japan. In 2017, SIIF invested in Japan’s first health-care social impact bond (SIB) in the cities of Kobe and Hachioji. In Kobe, SIIF invested in a 30 million-yen ($274,000) project that provides nutritional therapy to a group of 100 diabetic people. Currently 320,000 people in Japan undergo dialysis, which costs 1.5 trillion yen ($13.7 billion) annually. If the project improves the health of the 100 participants, Kobe’s city government will repay investors a maximum internal rate of return of about 5 percent to cover part of the medical costs. SIIF encouraged private investors, such as Sumitomo Mitsui Banking Corporation, to get involved in impact investing. In Hachioji, SIIF invested in a 9 million yen ($82,000) project that sent a letter prepared by AI technology analyzing 12,000 individual data and clinical data for improving colorectal cancer screening rates.
In March 2018, SIIF invested 30 million yen ($274,000) in an intermediary called Plus Social Investment (PSI), established in Kyoto in 2016, which connects impact investors with regional impact-driven enterprises. PSI also works with local financial institutions to introduce PSI’s investment products that support local impact-driven enterprises to their retail customers. PSI structures investment products for local enterprises. Then, local financial institutions introduce such products to their customers. According to the Bank of Japan, over 50 percent of Japanese households’ 1.8 quadrillion yen ($16.4 trillion) in assets is kept as cash and deposits. Also, regional financial institutions face a structural challenge for their businesses to survive as they face aging communities and declining economies. New investment products developed by PSI provide a way to employ Japan’s underutilized household assets for revitalizing regional economies.
As impact investment is still a new practice in Japan, SIIF is looking into ways to measure the social impacts created in order to encourage more investments in impact-driven enterprises and causes. Fumi Sugeno, senior program officer at SIIF, said, “In Japan, utilization of private capital for social issues is attracting government interest. More and more private investors are starting to pursue a double bottom line.”
As interest from investors continues to increase, organizations like Kamakura and SIIF aim to help social enterprises capitalize on the opportunities. “Development in social enterprises is lagging behind the increased interest from investors,” Sugeno says. “SIIF would like to nurture the demand side to connect social ventures with investors and create a cycle of funds flow throughout the country.”