Polaris wins PSERS support for $1.4b Japan fund

Having launched with a target of JPY130 billion – JPY150 billion represents the hard cap – Polaris Fund V reached a first close of JPY81.6 billion in November 2019. A series of interim closes took it to JPY117.4 billion as of July. A final close is scheduled for the fourth quarter of 2020, according to materials released by PSERS.

The US pension fund plans to invest JPY10.6 billion in the fund, which will pursue a combination of corporate carve-out and business succession transactions. Sources previously told AVCJ that the fund would comprise two vehicles: a core fund of JPY120 billion and a JPY30 billion sidecar. Japan Industrial Partners (JIP) adopted a similar structure two years ago when it made a big step up in fund size, raising JPY148.5 billion, including a JPY45.2 billion co-investment tranche.

Polaris closed its third fund in JPY39.1 billion in 2012 – the first one raised after management began to take full ownership of the GP, a process completed in 2018 – and JPY75 billion for its fourth. The domestic-offshore split for the latter vehicle was 50-50. Local investors included banks, insurers, securities companies, corporate pension funds and government institutions.

Fund V will mainly pursue investments in businesses with enterprise values of JPY11-74 billion, backing at least 10 companies in total, according to materials published by PSERS. The co-investment sidecar will participate in deals that exceed 8% of commitments to the core fund. In addition to succession and carve-out opportunities, it will consider restructuring or take-private transactions. Core industries include manufacturing, technology, healthcare, consumer, IT, services, and logistics.

Led by Yuji Kimura, the president and founder, Polaris has a 17-person investment team, supported by three operations professionals, and six more staff across finance, investor relations and business development. It claims to be on the only Japanese mid-cap GP with a presence in Osaka, having opened an office in city in 2011 to expand its reach further along the Kanto-Chubu-Kansai axis that also takes in Tokyo and Nagoya. There is also an office in Singapore.

Recent investment activity includes a JPY76.3 billion privatization of Sogo Medical, a Japanese pharmacy chain operator and B2B healthcare management platform. Hamilton Lane participated as a co-investor. Polaris has also bought an automotive components subsidiary from Hitachi Corporation, an online marriage services business from Rakuten, a security systems unit from Panasonic, and a care services provider from CVC Capital Partners.

Numerous domestic and international GPs are mobilizing in anticipation of more deal flow in Japan. Bain Capital recently launched a dedicated Japan fund with a target of JPY100 billion, while The Carlyle Group raised JPY258 billion for its most recent country vehicle. Both funds operate alongside larger pan-regional vehicles. Local player Integral Corporation is expected to move from JPY73 billion to around JPY100 billion for its latest fund.

PSERS had $55.8 billion in net assets as of March 2020, with $8.6 billion – or 15.8% - of that deployed in private markets. The market value of the private equity portfolio was $7.7 billion with a further $5.9 billion unfunded. Baring Private Equity Asia, Hahn & Company, and Orchid Asia are among the other Asia-headquartered portfolio managers.

Image: Japanexpertena, 2014 (CC BY-SA)

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• Topics
• North Asia
• Fundraising
• Buyout
• LPs
• Japan
• Polaris Capital
• Pennsylvania Public School Employees’ Retirement System (PSERS)