(FORTUNE Magazine) – It's a long way from the spacious skies over the family tobacco farm in Kentucky to the tightly packed urban sprawl of Tokyo, but Timothy J. Collins has a foot in both places. He has also helped bridge an even greater gap--between the business practices of Japan and those of the rest of the capitalist world. Since opening its first Japan fund in 1999, Collins's New York--based Ripplewood Holdings (named after the farm) has become the country's most active foreign private-equity fund. And Collins, who speaks little Japanese, has become one of the country's most closely watched and controversial investors. To those who question the wisdom of buying into the industrialized world's most dysfunctional economy, Collins replies, "Look, we're not buying indexes on the Nikkei here. We're buying great businesses."

Ripplewood has bought a bank (Long Term Credit), two auto parts suppliers (Niles Parts and Asahi Tec), a record label (Columbia Music Entertainment), and a resort (Phoenix Seagaia) that's home to a gargantuan indoor beach made of crushed marble. It is also negotiating to buy Japan Telecom, the country's No. 3 fixed-line phone operator, from Britain's Vodafone. The deal, which could top $2 billion, would be the richest private-equity transaction in Japanese history.

In the Japanese media, funds like Ripplewood are routinely vilified as "vultures," feasting on the carrion of Japanese borrowers. But in fact those vultures have a track record of revitalizing near-dead Japanese companies. Nissan and Mazda were turned around by Renault and Ford, respectively. Shinsei Bank, the successor to Long Term Credit, is now Japan's most profitable bank, while Goldman Sachs is Japan's largest golf course operator.

At most big Japanese companies, notes Shinsei's CEO, Masamoto Yashiro, executives "hesitate to take the kind of actions necessary to turn around the company." As outsiders, foreign investors have more freedom to defy entrenched management habits. One of the keys to Shinsei's success, for example, was that it did such "un-Japanese" things as requiring deadbeat borrowers to pay up. If Shinsei were to go public, analysts estimate its market value would be $8 billion--a handsome return on Ripplewood's $1 billion investment in March 2000.

Prior to the Shinsei deal, Collins, 45, had no experience in Japan. The son of an engineer, he earned a business degree at Yale and cut his teeth in the M&A business for six years with Lazard in New York City. He left Lazard in 1990 to run the New York office of Onex, a Toronto investment company. In 1995 he decided to strike out on his own, putting together a $450 million war chest. Mitsubishi, which was looking for a way to diversify into investment banking, took a 12% stake, with chairman Minoru Makihara joining the board. On visits to Tokyo to see Makihara, Collins began to get excited about Japan. In 1998 he floated the idea of launching a Japan fund. "I said, 'No, I don't think so,' " Makihara recalls. " 'Japan is still very closed. It will be too difficult.' "

But Collins persuaded Mitsubishi to chip in $200 million for Ripplewood's first Japan fund. In turn, Mitsubishi has recruited other Japanese allies. Of the $1.2 billion Ripplewood raised for its second Japan fund, Japanese investors--among them Bank of Tokyo Mitsubishi, Tokio Marine & Fire Insurance, Orix, and Daido Life Insurance--contributed 40%. "In a funny way," says Collins, "we're not a foreign investor."

Ripplewood's connections enable it to move like a Japanese investor, but its Western management ethos allows it to impose market discipline. To turn around Niles Parts, for example, Ripplewood installed management that dumped a money-losing maker of trash compactors, closed a plant, shifted some production to South Korea, pared the workforce by 25%, and forced out the founding Suzuki clan, all steps a Japanese company would probably not have taken. This year Niles is expected to report its first profit since 2000.

Collins professes absolute confidence that by bringing better management to good companies, Ripplewood's Japan investments will generate returns comparable to the 60% it averages in the U.S. "We think the untapped potential of this economy is huge," he says. Is that the sound of a vulture? Perhaps--and if Japan is lucky, it will draw more of them. --Clay Chandler