Japan Post Bank sees sharp increase in PE exposure

The portfolio has grown steadily since private equity investment was introduced eight years ago, rising from JPY 400bn in 2018 to JPY 3.2trn in 2022. Over the same period, real estate increased from JPY 200bn to JPY 2.6trn. The most recent jump in private equity – by comparison, real estate rose by about one-third to JPY 3.5trn – was due to the adoption of fair value measurement, JPB said in a filing.

Overall strategic investment area holdings – which include private equity and real estate funds and other unspecified assets – grew from JPY 6.4trn to JPY 10.1trn. JPB’s current medium-term plan had envisaged reaching JPY 10trn by 2026.

Of the JPY 2.6trn increase in private equity fund assets, approximately JPY 1trn was attributed to upward changes in fair value and JPY 1.4trn to rising balances. Private equity now accounts for 2.5% of JPB’s overall investment portfolio, up from 1.4% a year earlier, and 5.6% of its JPY 99.4trn risk asset portfolio, which is primarily held in foreign securities.

The private equity total does not include JPY 1trn in unrealised gains, compared to JPY 1.2trn in 2022.

Last year, JPB offered some insights into portfolio performance, noting that the asset class had generated a positive return in each of the five years through 2022. Net realised gains in 2022 alone were JPY 125bn, a threefold increase on the previous year. Net IRR and total value to paid-in (TVPI) were 17.2% and 1.42x as of March 2022, beating targets of 8% and 1.3x.

However, JPB has struggled to respond to a glut of re-ups in recent years as fundraising cycles shortened from 24 to 18 months. Speaking at the AVCJ Japan Forum last October, Tadashi Nishizawa, a managing director in the private equity department, said this resulted in JPB overrunning its budget. Not wanting to cut managers from the programme, the team reduced cheque sizes instead.

“More recently, yen depreciation has progressed. We still didn’t have sufficient commitment amounts, and so we struggled,” Nishizawa added. “When it comes to the existing portfolio, about 70% of the foreign exchange is hedged, so it doesn’t impact us so much. We haven’t suffered an overallocation and we haven’t had to sell. But what we do have trouble with is new commitments.”

While fundraising globally has since slowed down, LPs are mindful that a weaker yen will impact the purchasing power of their budgets. Moreover, the situation could be exacerbated by dwindling distributions, with less incoming cash to fund ongoing capital calls that are inflated by the currency effect. It is suggested some investors might sell down portfolios to support future commitments.

“Next year will be harder because yen depreciation and the likely slowdown in distributions means there will be less capital to redeploy,” said Kazushige Kobayashi, a managing director at MCP Asset Management, an Asia-focused alternative asset manager with fund-of-funds in Japan. “Japanese investors are concerned about the macroeconomic situation in general.”

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• Topics
• North Asia
• LPs
• Performance
• Fundraising
• Japan
• Japan Post Bank