HONG KONG - Hedge fund Oasis Management is turning the heat up on Pasona Group with its proposal for a management buyout and is planning to lodge a request to examine the books and records of the leading Japanese outplacement company.

The motion, said the activist investor which manages a fund that owns 4.8% of the company, was prompted by its frustration with Pasona's sub-par performance and refusal to engage with minority shareholders constructively.

"It has missed a lot on the governance side," Seth Fischer, Oasis founder and chief investment officer, told the Nikkei Asian Review on Nov. 10, a day after he launched the campaign. He noted that the company was fraught with issues such as inefficient capital allocation, absent cost management and a flawed governance structure.

Although Pasona is Japan's third largest staff company by sales volume, it has the lowest operating margin and net income margin among its peers, according to Oasis' analysis, published on the website "A Better Pasona" it had set up. Pasona's return on invested capital, targeted at 8%, was also less than half of the industry average of 18.3%.

Fischer felt founder and CEO Yasuyuki Nambu was running Pasona almost like a private company. "Maybe, in many ways, he has some very nice ideas, but they are inappropriate in a public company," said Fischer, citing projects such as building a zoo in downtown Tokyo, having an extraordinarily expensive guesthouse, and ploughing 3.55 billion yen ($31 million) into constructing loss-making theme parks.

He said if Pasona was willing to adopt Oasis' suggestions, its operating margin will go up to 5.9% from last year's 1.6%. Price-to-earnings ratio will also be normalized to around five times from the current 68 times. But with Nambu controlling a 40% stake in the company, changes through votes would be hard to come by, said Fischer.

He revealed that Oasis, having been a shareholder of Pasona for over a year, has been engaging the company the last couple of months, but to no avail. "We are only making things public when we have run out of options to do these things privately," he said. Pasona's board is chaired by Heizo Takenaka, scholar and economic advisor to former Japanese Prime Minister Junichiro Koizumi.

Pasona Group told the Nikkei on Friday that Oasis' proposal would be "respected and sincerely accepted as a valuable opinion." But it also said: "We are not in a stage to make any comment as we now confirming the facts."

Fischer said the campaign has thus far received a lot of response from stakeholders, including dispirited employees. "My phone has been ringing nonstop," said Fischer, noting that he is also engaging other shareholders. But if Pasona remained passive in its engagement, Oasis will "pursue every option available."

"The next step will be submitting shareholders' request," said Fischer, who did not rule out the option of buying more shares in Pasona. "We can ask for books and records and do a full inspection for where else they have been wasting ... wasting capital."

In its white paper, Oasis urged Pasona to consider a management buyout: "We have candidates for Pasona's board whom we believe is capable of carrying out our value-enhancement plan and is also fully independent from the current Pasona board and management."

Apart from Pasona, the Hong Kong-based financier that has $1.2 billion of assets under management has also made similar outcries against Alps Electric's car audio and navigation making unit, Panasonic's homebuilding arm, and Hong Kong-listed Yingde Gases Company.

He hoped that the current bull market in Japanese stocks, at its highest in a quarter of a century, would support more public companies in the country to improve their governance.

"When earnings [are] good, you should feel more prepared to take the steps of improvement of governance, of improving your [return on equity], of thinking about having more independent directors," said Fischer.

"There are other engagements that are private right now," said Fischer, referring to his other activist campaign. "That, maybe, will become public in the future."

Nikkei staff writer Shoichiro Taguchi in Tokyo contributed to this story.