Japan LDP Proposes Rules on Activist Hedge Funds, Buyouts

Japan’s ruling Liberal Democratic Party has released a draft of corporate governance proposals that states activist hedge funds may coordinate with private equity firms in take-private transactions. The draft comes from an LDP project team and is expected to be finalised by the end of July.

The document notes cases where activists are suspected of working with private equity buyers behind the scenes and where proceeds from activist share sales were reinvested into acquisition vehicles set up by private equity bidders. It does not name specific transactions or firms.

The draft warns such arrangements could harm market fairness and long-term corporate value. It proposes tighter rules on shareholder actions, including stricter requirements to call extraordinary general meetings and tougher conditions for filing shareholder proposals, particularly those that would directly affect management execution.

Lawmakers also discussed measures to curb what the draft describes as speculative or abusive merger arbitrage trading tied to buyouts.

The paper recommends studying aspects of U.S. corporate law, including restrictions on appraisal-rights claims by investors who buy shares after a takeover announcement. Appraisal rights allow dissenting shareholders to require a company to buy their shares at a court-determined fair value after a takeover. The draft notes changes to these rules would need longer-term study because of possible effects on Japan’s legal framework.

Activist campaigns and private equity activity in Japan have risen in recent years. Dealogic data cited in the draft shows buyout volume reached about $42 billion in 2025, up nearly 48% from 2024, with momentum continuing into 2026.

The draft references ongoing high-profile transactions observed by market participants, including a bidding contest for Kakaku.com involving EQT and a consortium led by LY Corp and Bain Capital, and a prolonged acquisition process for Toyota Industries in which Elliott Investment Management built a significant stake while seeking a higher offer.

The Japan Private Equity Association declined to comment. The LDP document does not single out specific activist funds or private equity firms for sanction. The project team indicated some measures could be implemented through corporate governance rules, while legal changes, especially on appraisal rights, would require extended debate and study.