North Asia GPs cautiously optimistic on economic reforms – AVCJ Forum

Anthony Miller, CEO of PAG Japan, said that Abenomics - the package of monetary, fiscal and structural reforms promised by Prime Minister Shinzo Abe - represented the country's best chance in 15-20 years to reinvigorate the economy. Of the three arrows of Abenomics, he sees structural reform as the one that could deliver the greatest benefits, but it is also the one that has yet to implemented.

"There are probably 10 mini arrows in that third arrow," Miller said. "If he gets 10-20% progress in the next 3-4 years he will get another 3-4 years after that. The economy has been flat-lining for so long but the government knows what it needs to do."

Soichi Sam Takata, head of private equity at Tokio Marine Asset Management, added that a lot of capital has flowed into real estate and restructuring opportunities in the wake of Abenomics, while private equity has yet to benefit. However, he expects the situation to change as domestic institutional investors become more tolerant of the risks tied to the asset class.

As for Korea, the principal factor driving change is renewed pressure on local conglomerates, or chaebols, to face the consequences of underperformance and divest non-core assets. In recent years, both the government and local banks have shown their willingness to let these companies go bankrupt rather than bail them out.

Jason Shin, managing partner at Vogo Investment, compared the emerging private equity opportunity with that of M&A, noting that many market watchers said the spike in activity after the Korean financial crisis wouldn't last but were subsequently proved wrong.

"Foreign GPs left town in 2008, saying Korea didn't have many assets for sale. We have proven there is deal volume coming out of Korea if you have the networks and know where to look," he said. "In the last 3-5 years there have been management changes and families are looking to dispose of 100% of businesses. I can comfortably say that there is a trend for attractive companies coming up for sale and at reasonable valuations."

Shin's concern is exits. The slowdown in the domestic IPO market continued after the global financial crisis ended, frustrating many investors who held minority positions. He expects to see more trade sales - with a cluster of the more robust chaebols being the most likely buyers - but admits it is an area that remains somewhat untested.

"The jury is still out on the lack of exits," Shin said. "A lot of capital has been deployed in companies in Korea but there have not been as many high-profile or convincing exits. That still needs to be accounted for and we will have to look out for it in the next 3-5 years."

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