Japanese gold rush ‘finished’

A leading practitioner in the Japanese private equity market has speculated that opportunities for making quick and easy profits in the country are rapidly disappearing.

Masayuki Yasuoka, the recently appointed head of US-based Newbridge Capital’s investment activities in Japan, has said in an interview that buying Japanese assets on the cheap and then cashing in for large profits is becoming a thing of the past.

“Bottom fishing is pretty much finished,” he told Reuters. Instead, he said Japan is coming to resemble the more mature private equity markets of the US and Europe, where investors need to identify value in situations such as sales of non-core subsidiaries, succession issues or where companies are looking for capital to expand.

Yasuoka, who joined Newbridge from General Electric last month, said Japan remained a “focus country” for the firm, which was set up in 1994 as a joint venture between Texas Pacific Group and Blum Capital Partners and invests on a pan-Asian basis.

Newbridge was part of an investor consortium led by New York-based Ripplewood Holdings that backed the $2.4 billion buyout of Japan Telecom in 2003. The business was subsequently sold on to Softbank last year and delivered profits of around four times capital invested to the consortium.

Ripplewood was also the lead investor in the 2000 buyout of Shinsei Bank, a distressed investment that went on to become one of the most profitable private equity deals of all time following the listing of Shinsei on the Tokyo Stock Exchange last year. The Japanese parliament is currently discussing the introduction of a 20 percent withholding tax on capital gains and income earned by foreign LPs in the country, which critics view as a knee-jerk reaction to the profits taken out of the country by Shinsei’s backers.

Japan is Asia’s largest private equity market by a distance, with over US$7 billion invested in the country in 2004. The second-largest investment total in Asia last year was the US$2 billion recorded in Australia.