Exclusive: Tokio Marine eyes foreign capital for Fund V

The Japanese private equity fund is targeting $500m for its next vehicle, hoping to raise 25% from offshore LPs

The private equity arm of one of Japan’s large insurance companies, Tokio Marine Capital, is plotting its next fund as the macroeconomic environment continues to improve in Japan.

The firm intends to raise close to JPY60 billion ($500 million; €438 million) for the vehicle, its fifth private equity fund since its debut in 1998, and will focus on buyout opportunities in Japan, sources with direct knowledge of the matter revealed to Private Equity International.  

The fund hopes to raise 75 percent from domestic LPs and up to 25 percent from offshore to comply with regulatory restrictions that impose taxes on funds that raise more than a quarter of commitments from foreign investors, one source explained.

While Tokio Marine’s JPY23.3 billion predecessor vehicle did not receive any foreign capital, the firm has in the past raise offshore money, including from investors such as Coller Capital and AIG.

For its current fund, TMCAP 2011, one source explained that foreign investors had stepped away from Japan, largely due to currency risk. However, as the exchange rate has improved for offshore LPs, the firm is hoping they will be willing to commit capital to the country once more.

The firm continues to invest out of its 2011 fund and is pre-marketing for the next vehicle, which will launch by the end of the year.

Of its 15 buyout deals,  Tokio Marine has realised 13, making a 6x multiple and 45.6 percent IRR on its most recent exit from Bushu Pharmaceutical, which it sold in December 2014 for JPY76 billion, according to the firm.

Tokio Marine Capital is part of the Tokio Marine & Nichido Fire Insurance Company, which has about $70 billion in assets under management. The private equity unit, sister to Tokio Marine Asset Management, which invests mostly in public equities but has some private funds, has nine investment professionals and focuses on Japan’s small- to medium-sized enterprises.