New kids on the block: Accessing Asia's emerging LPs

Japan Post Group is interested in alternatives. Masatsugu Nagato made this clear last year when he was CEO of Japan Post Bank, and he restated the view last week in his new role as head of Japan Post Holdings. The shopping list is the same: private equity funds, infrastructure and offshore real estate investment trusts (REITs).

Japan Post Bank accounted for the majority of its parent company's JPY295.8 trillion ($2.7 trillion) in assets as of March 2015. As of September, just over 45% of the bank's holdings were in Japanese government bonds, although it has already begun diversification efforts, allocating more to higher-return assets. A division was created at the end of last year to explore opportunities in private equity and the first commitments were expected to be made in the first half of this year.

While its initial allocations will likely be highly conservative and limited in number, Japan Post Bank is almost certainly on the call sheet of investor relations executives and placement agents in the private markets space. And maybe not just Japan Post. Following the Bank of Japan's decision in January to introduce negative interest rates, sending the yields on some bonds into negative territory, various financial institutions - but notably insurance companies - have indicated that they will target overseas assets. Infrastructure is often the top priority, but sometimes private equity gets a mention as well.

Even if there is no chance of a commitment in the near term, it pays to establish relations with LPs. Some are new to the asset class and looking to build up a base of knowledge, while others might already been allocating to PE but are now planning to deploy more capital. Japan's insurance companies arguably fall into the latter category. Few, if any, could be described as an easy sell, so it helps to get in early. This is why rather than take the standard approach of spending 80% of their time with the 20% largest clients, some fundraisers operate on a 60-40 basis in the interests of business development.

Broadly speaking, Asia-based institutional investors with a remit to do private equity fall into three categories: the regional offices of US and European groups such as fund-of-funds and a smattering of pension funds; indigenous Asian fund-of-funds; and local institutions, including sovereign wealth funds, insurers, banks, family offices of reasonable size and a few endowments. Members of the third category vary hugely in terms of experience and sophistication, but they include the emerging LPs.

If they haven't invested in the asset class before, some of these groups don't necessarily know what they want from it - or even what it is. Tuck Furuya, co-founder of Japan-based boutique placement agent Ark Alternative Advisors, previously told AVCJ that when most local pension funds hear the word "alternatives" they usually think of real estate first, then hedge funds and private equity. Private equity might also be confused with venture capital, resulting in a strong but misplaced risk aversion.

As such, what these investors need might be support. Some commitments to GPs come with the proviso that members of the LP's team get to spend time on the ground seeing how investment decisions are made. Alternatively, it may be that semi-regular meetings and an exchange of industry chitchat will suffice.

Almost all LPs, regardless of country of origin or level of experience, talk about wanting to establish real partnerships with managers - there are plenty of anecdotes about GPs spending 18 months, off and on, with a single Asian LP that wanted to get comfortable with strategy. The question for private equity managers is: Will this investor write a large enough check to make the process worthwhile? Sound pre-meeting due diligence should mean they go into the meeting already equipped with an answer.

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• Topics
• LPs
• Fundraising
• Asia
• Japan