Asian Capital Alliance (ACA), an investment company and fund manager, has hired Ark Totan Alternative, a professional fundraiser, in a bid to diversify its LP base for its Fund II.
Takeshi Nishino, ACA managing partner, said: “In order to bring in corporate pension funds and financial institution LPs, we felt the need to engage a professional fundraiser specialised in these LP segments.”
Although he would not disclose the amount Ark raised, it was “sufficient enough that we may consider engaging Ark’s service again in the future”.
Fund II was launched in 2014 and has a $50 million investment target. It is structured as a five-year fund, with three years as the investment period and two years for divestment. The fund is now 65 percent invested. It followed Fund I, launched in 2009, which reached $40 million. The launch of Fund III, with a target of $80 million, is also planned.
All three are aimed at the small-cap market and fall under the umbrella “small buy out”, for which Nishino is responsible.
A typical investment would be “in the range of $5 million and $10 million per deal where we hardly run into competitors” he said, adding: “The small-cap market is the least crowded in terms of number of GPs, but abundant with deal flows. We typically source deals on a proprietary basis or through a limited auction process. For this reason, we have managed to keep our entry price at a relatively low level, 2.5-4.5x EBITDA.”
When assessing how to create value in a portfolio, if 10 problems were identified “we would take on three priority issues instead of fixing everything”, he said. This allows ACA to hold on to a portfolio company for about two years instead of a typical five-year period, he added.
As a consequence, ACA targets a lower return multiple than typical buyouts, but delivers higher IRR, said Nishino. “Our Fund I returned 2x ROI, IRR 40 per cent, and Fund II is currently on track to outperform Fund I,” he added.
Private equity fundraisers are rare in Japan, Nishino said, adding that “Ark spent several months on due diligence to really understand our investment strategy … Ark knows the LP market quite well especially when it comes to pension funds. Pension mandates are quite complicated with multiple parties engaging in a fiduciary account setup”.
ACA Group comprises ACA Investments and ACA Inc, which were founded 2008 and 2005.
As well as the small buyout fund, ACA has a healthcare fund and a special situation fund. The company manages assets totalling about $400 million.
Ark Totan, which is based in Tokyo, is a placement agent and also provides advisory services. It is seeking to increase its Japanese asset trading and advisory business fivefold to ¥100 billion yen ($840 million; €750 million) by targeting local pensions looking to boost private investments, according to a report in 2014.
Ark Totan is 65 percent owned by Totan Holdings, which was established in 1909, and 35 percent by the partners of Ark.