INV Inc believes in a world where those who work hard and diligently can become wealthy.
In February 2024, the Nikkei 225 roared past the JPY 40,000 mark, and this has been a record-breaking year for Japan, financially speaking. We also saw increased IPO activity, with 97 companies going public, raising over JPY 570 billion. There has also been a surge in private equity deal-making, with the average number of deals tripling from 2018 to 2022. This has all drawn unprecedented levels of foreign capital into Japan’s financial markets, with foreign investments at a ten-year high. What do you believe are the core reasons for this extraordinary performance in Japan’s investment markets?
A key reason Japan has recently become increasingly attractive to foreign investors is the significant depreciation of the Japanese yen against the dollar. This substantial drop in the exchange rate has drawn considerable foreign interest, as evidenced by the surge in inbound tourism. In fact, many of the services now available in Japan owe their existence to the influx of international visitors, facilitated by the weakened yen.
Another crucial factor, from my perspective, is the leadership of the Abe administration, which held office for approximately eight years. During this period, Japan made significant strides toward becoming a stable and secure nation, both in terms of international geopolitics and domestic reforms. These efforts have enhanced Japan’s appeal to foreign investors, establishing the country as a reliable and trustworthy base for investment.
Lastly, Japan’s historically low interest rates have also played a role. Although there has been a slight increase recently, the rates remain near zero, making the investment climate highly favorable. Together, these factors have contributed to Japan's current standing as a highly attractive destination for foreign investment.
When we talk about the rising interest rates in Japan, there is a big disconnect between what insiders think and what outsiders perceive. If we look at the past 18 months, there are two sides to the outlook of the market. On the one hand, there are a lot of pessimists who believe that Japan’s recent bullish run was mainly due to macroeconomic conditions. On the other hand, there are those who believe there was a series of transformative changes occurring in Japan. Should macroeconomic conditions normalize, will those internal reforms be enough to carry Japan’s bullish momentum forward? Looking at 2025 and beyond, what do you think will carry the market forward?
Internal and external factors play equally significant roles in shaping Japan's financial environment. Notably, the long-standing low interest rates and the corporate governance codes mandated by entities like the Tokyo Stock Exchange have already demonstrated clear and positive impacts, making Japan increasingly attractive to foreign investors. Furthermore, in 2024, 97 companies, including ours, opted for delisting. This includes cases such as large subsidiaries of major listed corporations and companies with market capitalizations below a certain threshold. This trend reflects an adaptation to the globalization of the Tokyo Stock Exchange’s primary participants, resulting in a clear shift where only companies deemed attractive by foreign investors continue to maintain their listings. This ongoing process of corporate scrutiny and environmental improvement is steadily driving the evolution of Japan's investment market into a more robust and dynamic ecosystem.
Corporate governance has recently caught a lot of media attention with price-to-book ratio (PBR), capital efficiency, and other requirements, and it is clear that the reforms are what got that ball rolling. It has taken 10 years for these reforms to be felt, so now that they have accelerated, what do you think the market will look like in 10 years' time?
Things will only get better with society moving in a positive direction.
The introduction of the NISA was a big move by the Japanese government to change people’s mindsets from savings to investments. Do you think in the long-term, NISA will be successful in bringing Japanese household capital to Japan’s financial markets? What role do companies like yours play in maximizing the potential of NISA accounts?
NISA offers tax benefits for equity investments and serves as an entry point to the market for relatively younger individuals and first-time Japanese investors. It is evident that the number of people starting to invest through NISA is on the rise. However, while NISA has indeed contributed to an increase in the number of investors, this does not necessarily translate into greater investment in Japanese equities. Investors with higher financial literacy often gravitate toward U.S. stocks and mutual funds. That said, individuals who traditionally kept all their assets in banks are now beginning to diversify their holdings, with a portion potentially being allocated to equities. As a result, the share of equities in the personal assets of Japanese investors is likely to increase. Notably, many are expected to invest in companies they use in their daily lives or those with local affiliations.
Could you give us a rundown of the history of your company and some of the key milestones you’ve passed along the way?
Our company was founded in 1960 as a face-to-face securities brokerage, with our sales staff directly handling the sale of stocks and bonds. However, as online trading became the dominant mode of operation in response to societal changes, we transitioned into an online securities firm, primarily focusing on foreign exchange (FX) trading, which remains our core business today.
As residents of an island nation, we Japanese have historically relied on importing goods from overseas and exporting domestically produced products. Additionally, international travel, such as trips to popular destinations like Hawaii, became a significant trend, further familiarizing people with currency exchange practices. It is therefore no surprise that even ordinary individuals in Japan have long been mindful of the exchange rate between the yen and the dollar. This cultural familiarity has allowed foreign exchange services to establish themselves as a natural fit for the Japanese market.
In 2010, several years after our company began its FX operations, I assumed the role of president. During this time, I realized that high-leverage FX trading, while offering the potential for high returns, was also excessively risky for typical retail investors. It became clear to me that this type of trading was akin to allowing a novice driver who had just obtained their license to operate a Ferrari capable of reaching speeds of 300 kilometers per hour—any small mistake could lead to catastrophic consequences.
Recognizing this, we decided to pivot toward a more customer-focused approach by developing a system that automates investment management. This system simplifies risk management tasks, such as stop-loss orders, which are often challenging for beginner investors, and ensures that they are less likely to incur significant losses without realizing it. To put it metaphorically, instead of offering a supercar, we are providing a lightweight vehicle equipped with an automated driving system.
Try Auto is one of the products you offer clients, leveraging more complex than usual stock picking and making it simpler. I think, however, that your average person might be quite intimidated by the concept of an automated trading pilot. When you launched, wasn’t it difficult to find your niche or your consumer segment? To what extent did you have to educate the market and your users as to the benefits of this platform?
It is true that Japanese retail FX investors often prefer to decide the timing and specifics of their trades themselves. Some even conduct as many as 100 to 200 trades a day. However, for general investors—except for a select few sophisticated ones—this approach carries a high risk of significant losses. Our mission as a company is to mitigate such risks. The value a brokerage firm can offer to its clients falls into two primary categories: helping to maximize profits and helping to minimize losses. After thoroughly considering how we can best serve our clients, we concluded that our most important role lies in risk minimization.
For example, our recommended automated trading system operates by executing a series of predefined orders—typically dozens—based on preset buying and selling prices. To ensure the stability of this approach, we require clients to deposit an amount of margin that exceeds the legal minimum required by law. This recommended margin provides sufficient buffer to withstand reasonable market fluctuations, enabling clients to manage risks effectively and operate with confidence.
By utilizing our automated trading system, investors can ensure their risks are well-managed. However, it is not designed for thrill-seekers looking to engage in high-stakes, one-shot trades. Instead, our services cater to individuals who understand the importance of risk hedging and prioritize stable, medium- to long-term portfolio management. These are the clients we aim to serve.
Is your long-term plan to transform Try Auto into a global multi-asset platform?
Recently, we introduced contracts for differences (CFDs) into our offerings. Initially, we dealt with globally tracked exchange-traded fund (ETF) CFDs, but their lack of flexibility led us to transition into direct CFD trading. Our long-term strategy focuses on continuously expanding our range of asset classes, making them more convenient and accessible to investors. We have already incorporated fund-tracking indexes such as the NASDAQ, Nikkei 225, and others, providing our customers with a broader array of options.
Through our experience with Try Auto, we’ve identified that range markets yield the most effective outcomes within our system. As a result, we are particularly interested in enhancing our offerings in derivatives and commodities within this range market.
You mentioned adding new asset classes. Do you have any ideas about what the next class will be?
We don’t have anything in mind right now, although we do have interest currency exchanges between Australian dollars and Canadian dollars. This is probably tied to commodity prices. If there is something that meets our criteria, then we will investigate.
Your business also has an educational aspect, with both an e-learning platform and consultancy for learning abroad. What prompted you to move into the education sector, and what synergies are you able to leverage across your various group businesses?
Our core mission is to make the world a better place. Specifically, we aspire to create a world where talented and motivated young individuals are not forced to abandon their dreams due to financial constraints.
We envision a society where people can pursue work that brings them pride and purpose while earning a satisfying income. With this income, they can save, invest, and channel their resources into their children’s education or their own further development. This creates a virtuous cycle, a concept we refer to as “A Better Place.” Everything that contributes to the realization of such a world falls within the scope of our business.
We believe that allocating a portion of one’s income toward savings and investments is one way to fund education. Furthermore, receiving a competitive education leads to becoming a highly capable individual, which in turn creates advantages in the job market and enables higher income levels. Such a virtuous cycle can be fostered through initiatives in areas like early childhood education, English language training, and study abroad support—fields where we can actively contribute.
Students attending boarding schools often go on to prestigious U.S. universities, and globally, graduates from these institutions tend to secure higher-paying jobs. These higher incomes, in turn, serve as resources for investing in their children’s education. Individuals with international educational backgrounds are better positioned to pursue careers globally and accumulate wealth. Once wealth is established, they often seek education to enhance their financial literacy for better asset management. We are committed to engaging in all endeavors that foster such virtuous cycles, and we are eager to collaborate with like-minded partner companies who share our vision through partnerships and cooperative efforts.
On the other hand, there was a challenge we faced in pursuing the types of businesses I just mentioned. The reality is that industries such as education are far less profitable compared to financial services. As a publicly listed company, it is expected that shareholder capital should be invested in ventures with higher profitability, creating a conflict of interest when it comes to fulfilling our mission. Entering into areas like education would have been extremely difficult to justify to shareholders, which ultimately led us to make the decision to delist from the stock exchange.
INV Corporation recently delisted itself after a stock split. Can you explain to us why you were delisted and what you think the advantages of going private will be?
As a public company, we are bound by the obligation to prioritize growth and profitability while safeguarding the interests of our shareholders. Even at the time of our listing, I, as the CEO, held a 57% stake, with the remaining 43% owned by shareholders. I envisioned steering the business in a new direction; however, achieving this vision and driving sustainable growth required investments in areas that might not yield immediate profits. Such a strategy is often deemed incompatible with the expectations of a public company, and it could even be misconstrued as an effort to align the company’s operations with my personal goals. To address this, I proposed to the board that we delist from the stock exchange, allowing me to repurchase the shares.
Was it hard to convince the board to do this?
Not at all. Fortunately, the board supported my vision and shared an interest in transforming the company into an entity that makes meaningful contributions to society.
I want every child in Japan to understand that what we have discussed is a realistic option for them. While it is true that boarding schools are incredibly expensive, we aim to address these financial challenges by establishing various initiatives to support talented children who aspire to study abroad.
Let’s talk about 26 Degrees now. We saw that originally, the company was going to be called Invest Global, and it fulfills a very particular role in offering prime brokerage services to certain types of brokers and institutional investors, specifically hedge funds. This is an interesting niche you’ve found, especially when we look at how regulations have tightened for investment banking functions following the 2008 Lehman Shock. Could you tell us a little bit about the opportunities that you saw in the global market that led to the opening of 26 Degrees?
When I assumed the role of CEO in 2010, 100% of our company’s revenue was generated within Japan. However, recognizing the inevitability of global expansion in the modern era, I declared in my inaugural address as CEO that we would transform into a global enterprise. Three years later, in 2013, we established Invast Financial Services (now 26 Degrees) in Sydney.
Initially launched as a retail FX broker, the company faced significant challenges, enduring consecutive losses for three years. Following this, Gavin White, who was then serving as Vice President, took over as President and successfully transitioned the business model from a retail broker to a B2B financial services provider catering to institutional clients. Mr. White brought extensive experience in the B2B sector, having managed CFDs (Contracts for Difference) at MF Global Corporation and investment banks across Asia and Oceania. Over the past eight years, under his leadership as President of 26 Degrees, the company has experienced remarkable growth, significantly expanding its scale and operations.
Our decision to enter the B2B market was driven by the recognition of a "blue ocean" opportunity in the wake of the global financial crisis and the subsequent tightening of banking regulations worldwide. Many banks were withdrawing from the prime brokerage business, and we saw an opportunity to take on roles traditionally held by banks. This situation mirrors the regulatory environment following the Great Depression, particularly the implementation of the Glass-Steagall Act of 1933, which enforced the separation of commercial and investment banking. During that era, emerging players like Goldman Sachs and Lehman Brothers rose to prominence. Similarly, at 26 Degrees, we aim to pursue a comparable growth strategy and establish ourselves as a major force in this evolving landscape.
26 Degrees offers multi-asset prime brokerage solutions across a wide range of different categories. You also serve as a liquidity provider and offer some very innovative products. Having all of these functions requires a strong partnership network and access to big financial institutions that can help facilitate those operations. How are you able to create this partnership network, and could you tell us a bit more about the structure you’ve created in order to enable those different types of services?
To be honest, this extensive network of connections was built through the efforts of our CEO, Gavin White, and our CCO, James Alexander. With over 30 years of experience in the financial industry across the ASEAN and Oceania regions, they have cultivated relationships with numerous professionals, many of whom are now working at various investment banks and financial institutions. Through these long-standing acquaintances, our partners have naturally come together, allowing our network to grow organically.
How do you plan to grow this international part of your business? Are there any objectives you want to achieve?
We are committed to expanding our B2B business model, which requires significant capital. To achieve this, building partnerships with large financial institutions and securing growth capital are essential steps within our strategy to pursue further investment opportunities.
Are there any new locations you are looking to open in the future?
Discussions are on Canada, South Korea, Asia, and Europe, but nothing is definite yet.
Imagine that we come back in 2030 and have this interview again. What goals or dreams do you hope to achieve by the time we come back for that new interview?
In the next interview, I would like to explain that we, along with our partners, have “completed the circle” by addressing financial challenges and creating a virtuous cycle. This means we are actively operating in all three key areas necessary for fostering this virtuous cycle—education, employment and career development, and wealth creation—effectively addressing the financial challenges discussed in this interview. This achievement represents a significant step toward fulfilling our mission, and I would be truly delighted to share this progress.
For more information, please visit their website at:
https://www.26degreesglobalmarkets.com/
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