Japan’s $18bn government PE fund suspends operations

Japan Investment Corporation, which was set to make tech investments in Japan and the US, has ceased operations indefinitely following public outcry over senior executive pay.

Japan Investment Corporation, the $18 billion public investment fund launched in September last year, has ceased all operations following a mass exodus of its senior leadership team including its chief executive in December, Private Equity International has learned.

There has been no clear indication from the Japanese government whether JIC will restart its operations anytime soon, a source with knowledge of the matter told PEI, adding that there has been “no task and no work” at JIC since the senior departures.

The Japanese government, led by the Ministry of Economy, Trade and Industry, is set to begin the recruitment process of JIC’s new chief executive by end-March, it is understood.

All nine private sector executives out of the 11-member board of directors of JIC resigned in December following a dispute over remuneration. The Japanese government criticised the proposed annual salary of the executives, which could see each earn about $1 million. This includes a base salary of ¥15 million ($134,000; €120,000), a performance-based bonus of up to ¥40 million and carried interest of up to ¥70 million, the source said.

Japan’s economy minister Hiroshige Seko said in a news briefing in December: “There is a sense of the appropriate level that the public can accept. [The proposed amount] was too high.”

Along with issues on compensation, JIC’s former management and the ministry could not also agree on how the public investment fund should be run. The ministry demanded that the fund obtain its approval for each investment, according to a report from Japan Times.

Under pressure from the government and public outcry, the nine executives resigned in the same month, attributing their decision “to acts [by the ministry] to damage the relationship of trust between the fund and the ministry,” Tanaka told a news conference in Tokyo.

The senior executives who left JIC include former president and chief executive Masaaki Tanaka, deputy president Yasunori Kaneko, executive managing director and chief operating officer Hideaki Tsukuda, executive managing director and chief investment officer Hiroaki Toya, and external directors Masahiro Sakane, Kazuhiko Toyama, Takeo Hoshi, Ayako Yasuda and Akihiro Wani.

JIC was born out of the Innovation Network Corporation of Japan and established in September 2018 with ¥2 trillion of government funds to back domestic and overseas direct investments. The public investment fund was planning to deploy the capital across four funds: JIC-US, private equity, venture capital and “engagement”, managing director Toshio Yamauchi told PEI in November.

The first of the four funds, the $2 billion JIC-US Fund, was launched in October last year. Capital from the fund was set to back biotech and drug discovery companies mainly based in the US, the firm said in a statement.

The other three funds were set to co-invest alongside private equity and venture capital firms, as well as Japanese corporations. They were expected to have launched by fiscal year 2019.

The firm has not made any investments from these funds, the source noted.

Japan Investment Corporation declined to comment.