Japan Post Bank pursues global PE strategy – AVCJ Forum

Speaking to the AVCJ Forum, Japan Post Bank’s Managing Director and Head of Private Equity Hideya Sadanaga said that the bank has focused mainly on the US and Europe since its first private equity investment in April 2016. The two regions represent as much as 60% and 20% of the portfolio respectively, with the rest allocated to Asia.

Though Asia is underweighted in the portfolio, this was not the result of Japan Post Bank finding the region unattractive. The bank wanted to set up a diversified portfolio of assets modeled after Sadanaga’s previous employer Nippon Life Insurance, and with a limited team it felt it could find such diversity more quickly outside of Asia.

“I think we would like to increase our allocation in Asia with the help of our partners,” Sadanaga said. “We still have a pretty small team and we can't cover the globe effectively on our own, so we have a lot of partners that are helping us create this portfolio. But Asia is one of the places where we'd like to strengthen our portfolio.”

The bank started with a heavy emphasis on secondary investments, which it considered a safer bet when launching a new strategy, along with fund of funds that could give it generalized exposure to foreign markets. Japan has an outsize share in the bank’s relatively small Asia allocation, due mostly to the LP’s familiarity with the country.

In Japan, the bank has felt confident enough to pursue direct investments in funds rather than going through fund-of-funds. Areas of particular focus include venture capital: though Japan has relatively few independent VC firms, Sadanaga believes the asset class is set to grow as more young Japanese professionals gravitate toward launching their own companies.

The LP also sees opportunity in firms engaged in carve-outs from large Japanese corporations, but despite the visibility of deals like the recent purchase of Toshiba’s memory business by a Bain-led consortium, Japan Post Bank is hoping for transactions that strike a different chord in Japan’s economy.

“Of course there will be those deals, but that’s really a bit negative. What I'd like to see is more deals on the positive side,” said Sadanaga. “These would be large companies that are divesting certain group companies that they think are non-core and reallocating their resources to core operations that they want to focus on. That type of activity is probably coming from a general acceptance of things like better ROE and better corporate governance, and that's pretty encouraging.”

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