Japan Post Bank seeks domestic co-investments – exclusive

The $1.9trn investor is ramping up co-investments with mid-market managers in its domestic market as improving corporate governance among Japanese companies is opening up carve-out opportunities.

Japan Post Bank, the country’s largest private equity investor by assets under management, is looking to tap into investment opportunities in Japan’s small to mid-market space through co-investments, Private Equity International has learned.

Tokihiko Shimizu, managing director and head of private markets investment at Japan Post Bank, told PEI the investor “expects more and more deal flow in Japanese private equity, especially because of homegrown private equity firms focused on the mid-cap and small-cap space.”

Shimizu noted that in order to capture these opportunities in the domestic market it will look closely at more co-investment or club deals with GPs as it retools its alternatives portfolio.

Shimizu declined to comment on its current GPs and co-investments commitments but the firm is reportedly in talks with a consortium of investors including KKR, Western Digital, Development Bank of Japan and the Innovation Network Corporation of Japan to acquire Toshiba’s chip unit in a deal valued at around $18 billion.

“Japanese society has not produced a lot of big opportunities in private equity for a long time. However Abenomics has shone a light on the problem – that the lack of deal flow came from a lack of good corporate management,” Shimizu pointed out.

He said that the implementation of the Stewardship Code in 2014 by the Japan Financial Services Agency and the Corporate Governance Code which took effect in 2015 will significantly improve the return on equity of Japanese-listed companies. “Now we expect companies will be selling down their non-core business or real estate in order to improve their return on equity.”

Succession issues in small and medium enterprises as well as the country’s service sector, which contributes around 70 percent to Japan’s GDP, also offer attractive investment opportunities for both Japanese and foreign investors, Shimizu added.

Japan Post Bank manages ¥209.6 trillion ($1.9 trillion; €1.6 trillion) of assets, according to its latest annual report. The bank has a target allocation of 3 percent of its AUM or as much as $60 billion for alternative investments, which includes private equity, hedge funds, infrastructure and real estate.

Shimizu said Japan Post Bank’s private equity programme expects to allocate more than 70 percent to primary investments, between 20 percent to 30 percent to secondaries, and the rest in co-investments in the first three years.

Its current alternatives portfolio has a bigger weighting in overseas than Japanese investments.