Currency, exit, labour issues worry Japanese GPs - AVCJ Forum

Megumi Kiyozuka, president and representative director of CLSA Capital Partners (CLSA CP) in Japan, noted that the yen’s plunge from JPY 155 to the dollar at the start of the year to JPY 144 has negatively impacted overseas investors in his funds, although valuations for new deals have become more attractive in US dollar terms. Other macro pressures such as rising inflation are less of an issue.

However, market volatility did cause CLSA CP to postpone an IPO for one of its portfolio companies, and the GP has no idea when the process might get back on track. Concerns about public market exits were echoed by Reijiro Yamamoto, representative director and founding partner of Integral Corporation, who described the IPO market as “so tough” and advocated exploring M&A options.

Meanwhile, pandemic-driven lockdowns in China and yen depreciation have hit one-quarter of the Phronesis Partners portfolio, said CEO Tomoya Shiraishi. This has pushed up the cost of raw materials and companies have not been able to pass on the full effect to customers through higher prices.

T.J. Kono, a partner at Unison Capital, highlighted cost pressures arising from Japan’s labour shortage. This was a constraint to growth for many companies pre-pandemic, but it has recently re-emerged with greater intensity. Digitalisation and automation are among the solutions being explored by Unison, he added.

These macro dynamics represent an investment opportunity as well as a problem, with CLSA now deliberately targeting businesses that address digitalisation, labour shortages, and Japan’s underserved welfare system.

“Such companies are likely to achieve considerable growth, with limited downside risk, and will be highly valued at the point of IPO or trade sale exit,” Kiyozuka explained.

Unison’s approach to deal-sourcing is increasingly driven by knowledge and insights gleaned from elsewhere in the portfolio. For example, experience running a pharmaceutical manufacturer can be useful when looking at hospitals, home nursing services, and even dentistry, Kono said.

“If you narrow down focus areas, you can see targets more clearly,” he added.

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• Topics
• North Asia
• Buyouts
• IPO
• GPs
• Japan
• AVCJ Events
• CLSA Capital Partners
• Integral Corp.
• Unison Capital