Fund focus: Back on the map

Given the growing interest among Japanese institutional investors in private equity, it comes as little surprise that The Longreach Group saw a jump in contributions from that market for its latest North Asia buyout vehicle. Every Japan-only mid-market GP has registered an increase in local capital for its most recent vintage. Longreach, which primarily operates in the country, duly raised 40% of Fund III from Japanese LPs, up from 27% in Fund II.

Indeed, it might be argued that the level of North American participation represents an equally significant development. The North America and Europe share held steady at 40%, but corpus has grown from $400 million to $650 million. Each of the existing LPs re-upped, with some doubling the size of their commitments, and half a dozen new names came in. Mark Chiba, group chairman and partner at Longreach, points to this as evidence that US investors are warming up to Japan’s middle market.

“Many LPs that wrote off Japan last time are starting to come back. They might have China exposure that looks great on paper but there are issues around liquidity, so they are willing to do something a bit more conventional in terms of buyouts,” he says. “Japan has generated enough of a track record over the past five years and then a lot of these investors have exposure to the country through pan-Asian managers.

”The LP base comprises corporate and government pension funds, sovereign wealth funds, financial institutions, and fund-of-funds. Japan’s Pension Fund Association for Local Government Officials (Chikyoren), Korea Investment Corporation (KIC) and Temasek Holdings-owned Pavilion Capital are said to be among the investors that have re-upped. The latter two groups account for much of the 20% Asia ex-Japan contribution.

The firm spent more than 800 days in the market with its previous fund and ended up scaling back the target from $750 million before closing in late 2012. “It was a difficult time – pre-Abenomics, the yen was at JPY80 to the dollar [it is now at JPY112], there was the earthquake and tsunami in 2011, and many people thought the economy was sunk,” Chiba observes.

Investor sentiment has since turned, with GPs claiming a rich pipeline of opportunities involving corporate carve-outs and founder succession situations. Longreach is a carve-out specialist and the two Japan-based investments made so far from Fund III – out of three in total – fit this profile. There are no plans to tweak the strategy. The larger corpus should lead to eight investments, as opposed to the five in Fund II, and the average check size is likely to increase slightly to around $80 million. If anything does change it will be the breadth of deal flow.

“Within the corporate carve-out space, it used to be concentrated on industrials and technology, but we are seeing a lot more in business services and consumer,” says Chiba. “We are also seeing more cross-border deals where foreign companies want to enter Japan or there are assets available in Japan that are held by overseas players.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Fundraising
• Buyout
• GPs
• Japan
• The Longreach Group Limited