Japan fundraising: Stronger sentiment

During the three-year period from 2006-2008, Japan-focused private equity funds received commitments in excess of $20 billion. Over the seven-and-a-half years that have followed, fundraising came to $26.4 billion, according to AVCJ Research. Even that figure is inflated by a few anomalies, such as the $1.4 billion Competitiveness Strengthening Fund launched in 2013, for which all the capital came from Development Bank of Japan.

That fund - plus a sizeable vehicle raised by Japan Industrial Partners, a first close for The Carlyle Group's third country-focused fund, and an assortment of other government-linked vehicles - took PE fundraising to $7.3 billion, the most in seven years. Remove 2013 from consideration and the $3 billion threshold has been crossed just once since 2009 - last year, when $3.3 billion was raised.

In 2015, Carlyle reached a final close on its third fund, for a total of around $1 billion, while Unison Capital closed its fourth vehicle at just under $650 million. For both GPs, this was the first full fundraise since the global financial crisis. Over the course of 2016, many other middle market and lower middle market firms will be in a similar position. Still more are fundraising for the second time since the crisis, some having found the previous process challenging and drawn out.

GPs including but not limited to Marunouchi Capital, Advantage Partners and CITIC Capital Partners Japan have already registered initial closes, while Integral Capital, CLSA Capital Partners, J-Star, NSSK, Polaris Capital and Ant Capital Partners are either in the market or preparing to enter it. Everyone is testing the water in circumstances that are - fingers crossed - less fraught than last time around, and apparently it feels quite warm.

Needless to say, exits help drive positive sentiment. Private equity firms generated proceeds of $8.5 billion from sales of Japan-based companies in 2015, $14.3 billion in 2014 and $8.4 billion in 2013. These figures include exits by global and regional funds, but generally speaking, Japan's middle market has delivered reasonably strong returns for LPs. There have been several stand-out transactions, such as Tokio Marine's 6x return from the sale of Bushu Pharmaceuticals and Advantage Partners' exit of United Cinemas, which generated a 9.9x multiple.

Another factor is the LP environment. Several lower middle-market LPs tried to diversify their LP bases in the last vintage by reaching out to offshore investors, with mixed success. Now fundraising plans are coinciding with movements in the Japanese LP community, as a variety of groups look either to enter private equity or increase allocations to the asset class. Some private equity professionals have received their first-ever inbound inquiries from domestic LPs.

Fundraising will not be easy, and as with other jurisdictions, some GPs will raise capital quickly while others struggle. But despite difficult domestic economic conditions and a degree of global uncertainty, Japanese private equity firms may find the market kinder than last time around.

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• Topics
• North Asia
• Fundraising
• GPs
• LPs
• Japan