Japan's WM, AIC launch secondary fund targeting LP stakes

Development Bank of Japan, a longstanding collaborator with WM, and Sumitomo Mitsui Banking Corporation (SMBC), a shareholder in AIC, have both commitments to the new vehicle, helping it reach a first close of undisclosed size. The balance will come from domestic LPs.

WM was established in 2013 by a team that spun out from JAIC and has to date focused on direct secondaries at the company level. Its most recent fund closed on JPY10.6 billion in 2018, with DBJ among the LPs, according to AVCJ Research.

“The allocation to LP secondaries in our previous fund isn’t large, but primary commitments to private equity funds in Japan have been increasing since 2013 and various investors have participated, not only financial institutions but also corporates,” Moriyoshi Matsumoto, a managing partner of WM, told AVCJ.

“They started programs without any difficulty but now they must think about sustainability and consider their options. A lot of corporate investors and corporate VC units are thinking about the next step.”

A record $11.8 billion was allocated to Japan-focused managers in 2020. The average annual allocation for the past five years is $8.3 billion compared to $5.7 billion for the five years before that. While global LPs are committing more capital, domestic investors still account for about half of most middle-market funds, with this percentage rising in the venture capital space.

Banking institutions and life insurance companies – some of which already have experience selling LP positions to global secondary investors – are expected to be a key source of deal flow for the new fund, known as Japan Private Equity Opportunity 2021. Meanwhile, corporates are seen as likely sellers of VC fund interests, especially when they want to realize capital and commit to new funds.

“If the money is there, the deals should be there,” Matsumoto added. “We have been thinking for a long time that if we could get commitments focused on LP secondaries, we could make that happen.”

DBJ and SMBC, as established financial institutions, will also play an educational role in a market where many potential sellers know little of secondaries. This inexperience extends to the monitoring of existing positions, with Matsumoto noting that the likes of regional banks require a lot of guidance because they “do not know how to sell and how to evaluate the funds they hold now.”

He added: “One of the difficulties in Japan is that investors don’t like to jump into transactions if they haven’t found any cases before. At the same time, they don’t like making decisions themselves – so they need advice to move forward – and they don’t have much idea about the market or process of the transaction.”

Other local players in Japan’s secondary market include Ant Capital Partners, although its secondary team recently spun out to form Bee Alternatives.

The GP expects to invest no more than 40% of its debut fund in Japan, but most of that will be LP positions. One perceived area of opportunity is facilitating partial exits for regional banks from earlier funds, so they can re-up in newer vintages and maintain relationships with GPs. These relationships are seen as a way of securing downstream leveraged finance work.

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• Topics
• North Asia
• Fundraising
• Secondaries
• GPs
• Japan
• Secondaries
• WM Partners
• Alternative Investment Capital
• The Development Bank of Japan (DBJ)
• Sumitomo Mitsui