Japan Post entities form joint PE investment unit - update

The new entity, Japan Post Investment Corporation (JPIC), will have initial funding of JPY120 billion ($1.1 billion). The capital will be held in a fund structure, with Japan Post Bank contributing two-thirds of the corpus and the remainder coming from Japan Post Insurance. The investment period is five years.

Funds formed by JPIC will primarily participate in buyout deals in Japan, targeting business realignment, succession planning, and restructuring opportunities, a statement said. Approximately 60% of the first fund has been earmarked for this purpose, with 70% of this allocation to be deployed in domestic deals and 30% overseas, according to Tokihiko Shimizu, a senior managing director and head of private markets at Japan Post Bank.

There will also be growth investments in technology-oriented companies, including local start-ups that are looking to scale their operations. These deals will account for 30% of the fund, while the remaining 10% is expected to target domestic special situations opportunities.

The two financial institutions decided to establish a stand-alone direct investment unit because they were being offered co-investments but found it difficult to act on them. Japan Post Bank, for example, is prevented by law from owning more than a 5% direct equity interest in a company. 

JPIC's direct exposure to individual buyout deals will be capped at 15%, which means it must work in partnership with fund managers - although these don't have to be portfolio GPs, the source added. Growth investments will be for minority stakes, so they can be made directly.

Japan Post Bank will have a 50% stake in JPIC with Japan Post Insurance holding 25%. The remaining 25% will be allocated to management. Shimizu will serve as president of the GP. There are plans to hire 30 people in total, including middle and back office staff. Most of these will be external appointments.

The introduction of negative interest rates has given all Japanese financial institutions greater reason to look to alternatives for returns, but the Japan Post Group entities have been particularly proactive. Their push into alternatives followed the listing of several divisions and a recognition that consistent cash flow would be required to generate dividends for shareholders.

Japan Post Bank established a PE department in late 2015 and launching an investment program the following April. As of March 2017, it had JPY209.6 trillion in assets, of which JPY607.3 billion was deployed in alternatives. The firm had committed around JPY140 billion to private equity by September 2017, mostly to overseas funds. Japan Post Insurance is smaller – with JPY80.3 trillion by March of last year – and entered the alternatives space later.

Japan Post Bank started with a heavy emphasis on secondaries and used fund-of-funds to gain general exposure to foreign markets. The US and Europe make up about 80% of the portfolio. Coverage of domestic private equity has been taken fully in-house.

Speaking at the AVCJ Forum in November, Hideya Sadanaga, Japan Post Bank’s head of private equity, said that the firm was working with partners on co-investment. He added that, as the program grows, co-investments in Japan would probably not be outsourced.

Sadanaga also highlighted Japan Post Bank’s interest in domestic venture capital – expressing a belief that the asset class is set to grow despite the relatively few independent VC firms in Japan. “It is a small part of our portfolio but we are working hard on it. Technology is changing people’s lives and how economies are being run. Japan has to be part of that and we have to be on top of that,” he said.

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• Topics
• North Asia
• LPs
• Buyouts
• Early-stage
• Japan
• Japan Post Bank
• Japan Post Insurance
• Co-investment