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  • North Asia

The 20-year review

  • Allen Lee
  • 25 June 2019
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AVCJ's Japan Forum has been going for two decades, a period during which the industry has embarked on several roller-coaster journeys. For now, though, the market appears to be in good health

This year marks the 20th anniversary of the AVCJ Japan Forum in Japan and our commitment to creating a venue that allows the Japanese private equity industry to meet, network and conduct business with each other as well as with peers from across the globe. 

It’s as good of a time to celebrate as any because Japanese private equity is in better shape than ever. Interest in the asset class from domestic LPs is growing, while investment is thriving in every segment of the market, from billion-dollar deals by brand-name buyout firms to early institutional rounds for tech start-ups. Earlier this year, Henry Kravis and George Roberts of KKR identified Japan as their highest priority market outside of the US. 

While AVCJ’s conferences have benefited from the excitement, our longevity instills in us a degree of healthy skepticism. Over the years, we’ve watched the industry embark on several roller-coaster journeys during which boundless investor optimism turned to despair as market dynamics changed. 

The premise of our first Tokyo event in 1999 was simply to bring together domestic LPs and GPs and their international counterparts. The likes of Advantage Partners and Schroder Ventures were already active in the market and Unison Capital was in its nascent stages. 

Soon after, Japanese private equity made international headlines when a Ripplewood Holdings-led consortium acquired Long-Term Credit Bank of Japan (LTCB, later renamed Shinsei Bank) and guided it out of bankruptcy. Other investors took notice. WR Ross, Cerberus Capital, Goldman Sachs and Newbridge Capital all started pitching for deals, competing with the dedicated Japan fund Ripplewood raised on the back of LTCB. The Carlyle Group launched its own Japan vehicle in 2001.  

Truly international venture capital also took off in 1999 when Yoshito Hori’s Globis Capital teamed up with Apax Partners to introduce “Western-style” VC to Japanese companies. Meanwhile, SoftBank was busy transforming itself into a holding company and striking its best-ever deal by committing capital to Alibaba Group. These two groups have flourished, but many of their global peers ended up retreating from the Japan market after the dotcom bubble burst in 2001.  

Shinsei came into focus again in 2005 when it went public, ultimately delivering for the owners what has been described as the single most profitable private equity investment of all time. Others tried and failed to emulate this success, first struggling to penetrate corporate Japan and then counting the cost of deals gone awry as the global financial crisis hit. The revival has been slow, but it is definitely happening – record highs for deal volume and value were set in 2016 and 2017, respectively.

So is this time different? Certainly, the stars appear more aligned than before. There is renewed hope in the start-up space as venture and growth investors look to deploy more capital. Mid-cap GPs are sitting on a wealth of potential succession deals as founders begin to realize that private equity isn’t as bad as they once thought. And larger buyout players are taking a more considered approach to the market as they look to take advantage of emerging corporate carve-out opportunities.

Finally, and perhaps most importantly, the private equity talent pool is deeper. Don’t get me wrong – more skilled practitioners are required in Japan’s GP and LP communities – but it helps to have people around who have lived and learned from previous cycles. 

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