Fund focus: Carlyle stokes Japan bullishness

The Carlyle Group is not unaccustomed to seeing excess demand for its Japan funds. For its second vehicle, the GP was said to have attracted some JPY215 billion ($2 billion) in subscriptions in 2006, only to stop at JPY166 billion, presumably to avoid overshooting the opportunity set. Fourteen years later, there appears to be little worry of doing that.

Carlyle Japan Partners IV (CJP IV), which closed last week, is the largest yet for the Tokyo-based team and arguably the largest-ever Japan-only fund by any GP. At JPY258 billion, CJP IV more than doubles the size of its immediate predecessor, which closed at JPY119.5 billion in 2015. It also suggests that heady demand for Japan exposure seen with CJP II is finally beginning to see a balancing level of supply in the form of an aging and increasingly PE-friendly business sector.

“We expect to see a huge amount of opportunity and deal flow in succession and corporate carve-outs in the next 5-6 years,” says Kazuhiro Yamada, Carlyle’s head of Japan. “About 1.7 million family-owned companies in Japan are seriously thinking about succession issues, and we’re in better dialogue with both midcap founding families and conglomerates. We will stay focused on midcap sized deals, but in the last 2-3 years, we’ve also seen more large opportunities in the pipeline. This new fund allows us to pursue more of these larger opportunities.”

The fund will make about 15 investments across Carlyle’s core Japan themes, including consumer, industrials, healthcare, technology, media, and telecom. Checks sizes for succession deals will remain on par with CJP III in a range of $100-200 million, while carve-out deployments will double in size to $200-400 million. Where large-cap opportunities are seen as having potential to scale outside the country, support form LP co-investment and Carlyle’s US, Europe, and Asia funds will allow the fund to target deals of more than $1 billion.

LPs include banks, insurance companies, corporate pensions, and a public pension. The geographic mix is in line with previous funds, with about half the corpus coming from within Japan and half from global players mostly representing Asia and the US. The more aggressive mandate also includes a staff build-out. Takaomi Tomioka and Hiroyuki Otsuka have already been named deputy heads of the buyout advisory. A number of junior hires are expected as well.

“We are differentiated in Japan because we have a 20-year track record in private equity in the country. That network and reputation has helped us do more than 80% of our deals on a proprietary basis, even as competition and valuations have been increasing,” Yamada says. “Now, due to coronavirus issues, investors in Japan could become more conservative, which could decrease competition and valuations. That is hard to predict, but with this larger fund, we will not be stepping back.”

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• Topics
• North Asia
• Fundraising
• Buyout
• GPs
• Japan
• The Carlyle Group