Japan’s Longreach ups exposure to domestic LPs in latest fund

Japanese LPs provided 40% of the $650m Fund III, investor relations director Lisa Herrell tells PEI.

Longreach Group, a Japanese mid-market firm, has raised its exposure to domestic limited partners with its third private equity fund.

The Tokyo and Hong Kong-based manager closed Longreach Capital Partners III on its $650 million target last week, according to a statement. Fund III had been in market since November 2016 and held four closes along the way.

Japanese LPs provided 40 percent of the capital, up from 34 percent of its $400 million 2011-vintage Fund II, investor relations director Lisa Herrell told Private Equity International. Asian LPs accounted for 60 percent of Fund III in total, down from 72 percent in its predecessor due to US LPs increasing their commitment size in the latest vehicle.

Almost 90 percent of LPs in Fund II re-upped to Fund III and 100 percent of US LPs did so, Herrell noted. Fund II included commitments from Korea Investment Corporation, Japan’s Pension Fund Association and the University of Michigan, per PEI data.

Fund II closed below its $700 million target on $400 million in September 2012, according to PEI data. That fund was difficult to raise due to a comparative lack of international investor interest in Japan at the time, but demand has grown following the introduction of economic policies by Prime Minister Shinzo Abe and the emergence of steady dealflow, Herrell added.

The firm, which typically commits $30 million to $200 million of equity per deal, will seek seven to eight deals from the new vehicle, up from the five it completed from Fund II.  It has already made two investments from Fund III, having acquired coffee shop chain Kohikan Corporation in May 2018 and a majority position in manufacturing business Fujitsu Component in January. A third deal has been signed.

Japanese LPs are warming to alternatives.

The $700 billion Japan Post Insurance, which established its alternatives unit in 2017, plans to deploy as much as 1.5 percent of its total assets under management – about $10 billion – in private equity, real estate, infrastructure and hedge funds by 2020. Japan’s Ministry of Health, Labor and Welfare gave approval in July for the Government Pension Investment Fund, the largest pension in the world with $1.5 trillion in assets, to invest in alternative assets via a limited partnership structure.

The majority of capital dedicated to Japan has been raised by domestic players in recent years. Managers collected $1.5 billion across five Japan-focused private equity funds last year and $5.5 billion across 16 funds in 2017, a five-year high, according to PEI data. Only one of the Japan funds closed in 2018 was managed by a firm headquartered outside of the country.