Private equity manager Ardian set up a Tokyo office in February and hired ex-HarbourVest Partners principal Kanji Takenaka to lead it. Ardian, which already manages more than $2 billion for more than a dozen blue-chip clients in Japan, wants to take advantage of a growing appetite for alternatives among Japanese limited partners in terms of fund commitments and separate accounts, says the firm’s new head of Japan.
What are your immediate plans for the new office?
Setting up the right local platform in Japan is our immediate focus. To do this, we plan to hire staff to support the high client servicing needs of Japanese institutional investors. Initially staffing will predominantly be on the client-servicing side, but the scope may expand in the future. We have already started the recruitment process and expect to add a few professionals over the next 18 months or so.
Ardian has been covering and serving the market since 2004, and we expect more opportunities to open up in the future. We see increasing demand from experienced and new institutional investors alike, across different alternative asset classes, so we are mobilising our resources to meet the market demand. On the investment side, we have already made several primary and secondary fund investments in the market, and will continue to seek opportunities now that we have a local presence in the market.
Any challenges you foresee?
It’s a very tight labour market right now. The people we seek, with the right international background, financial acumen, and commitment to our business domain are a scarce resource. We want to take the necessary time to build an organisation that can support the needs of the market. I believe Ardian has the right platform, at the right time, in the right location to offer tremendous growth opportunities for asset management professionals in Japan.
What’s the opportunity set in Japan?
First, on the investment side there are many opportunities in the mid-market. It is growing, and a big driver is the passing over of corporate ownership from the senior generation to the next generation, who are not always ready to take on the baton of ownership or managerial responsibilities. As a result, private equity is now squarely in the game of taking over that baton from company owners. That is a structural issue – if you look at the demography, it is very clear that has to happen, so that is a big boost for the supply side.
Nowadays corporate profitability is increasing and the government is supportive of these initiatives. Corporations are more willing to take some strategic decisions on what to keep and what to divest, so that part of dealflow is quite robust, too.
Third, the mindset is changing. Private equity is now a viable and credible player in people’s minds. People in Japan are more accepting of private equity acquiring corporations, and this may be partly due to the moves by Japanese public sector pension funds to identify private equity as a vital asset class. This sentiment is flowing into the Japanese corporate community.
What about the demand side?
Capital is coming from everywhere now, but investment opportunities are still scarce. It is always a supply-demand balance issue. As investors we need to be careful about how we put our money to work. I think identifying opportunities globally is becoming more technical and challenging. You need to be a qualified player in order to compete in this market, and work with the right partners to find appropriate investment opportunities and companies that have the capacity to add value and grow. A lot of due diligence has to happen and pricing discipline is of the utmost importance, otherwise investors will miss their expected return targets.
However, the performance of GPs is improving and dealflow is increasing so there is good reason to be optimistic. When the tide turns, we will see which managers are really adding value and who are qualified to manage through market cycles.
What are you seeing in the way of secondaries opportunities?
Overall, we see the private equity secondaries market developing globally. We used to say: ‘If you invest in private equity, you invest until fund maturity.’ But nowadays the secondaries market is developing and becoming more efficient. These traditionally illiquid assets are now more liquid. If you come to Ardian with a portfolio of private equity assets, we could probably provide a liquidity solution in a matter of weeks or a few months. Historically, people only sold in distressed situations – when they needed cash quickly or faced pressure and sold as a last resort. Now the largest institutions in the world are actively managing their private equity portfolio in the secondary market for strategic reasons and portfolio rebalancing. They can choose to focus on key GP relationships; sell old vintage assets and make new commitments; or perhaps pursue strategic co-investment objectives. There are a variety of sophisticated reasons around why LPs are selling now.
The secondaries market is very exciting and it is now a huge volume business. Ardian, being one of the largest secondary players in the world, has the capacity to serve the largest investors’ portfolio solution needs and that gives us a strong competitive edge.
What’s ahead for Ardian in Japan?
We need to make sure we set up the right platform here, with the right people and infrastructure. As a global platform we are as robust as we can be. My job is to make sure Japan is as robust as the rest of Ardian; that is my focus for the first year. Japanese LPs are increasing their capacity to invest in multiple alternative asset classes and have needs to be served by the most qualified investment managers around the world. Ardian strives to be one such manager and as a firm we need to make sure we have the capabilities and the capacity to serve them according to their highest requirements.