Japan’s Sunrise to spin out from CLSA over next two funds

Hong Kong’s CLSA started incrementally reducing its involvement from the Sunrise Capital general partner with the launch of Fund III in 2017, PEI understands.

Sunrise Capital, a Japanese mid-market buyout firm, is mid-way through the process of spinning out from its Hong Kong parent company, CLSA Capital Partners, Private Equity International has learned.

With the launch of Fund III in 2017 CLSA started incrementally reducing its involvement with the Sunrise general partner, according to a source with knowledge of the matter. The asset manager owned 100 percent of Sunrise’s first two funds but slashed its holding to 75 percent for Fund III and 50 percent in Sunrise Capital IV, which closed on its $450 million hard-cap this week.

Sunrise’s Tokyo-based management team will own an additional 25 percent of Fund V and be wholly independent in Fund VI, the source added, noting that there is no cash transaction. Each fund is being set up as separate entity with a unique ownership structure and Sunrise will set up a new company where CLSA isn’t an equity owner.

CLSA Capital Partners declined to comment.

CLSA Capital Partners is the asset management arm of Asian securities brokerage CLSA. The firm has more than $5 billion in funds under management across five strategies, including Clean Resources Asia Growth, private credit provider Lending Ark and pan-Asian growth capital business ARIA Investment Partners.

Sunrise Capital was founded in 2006 and is led by Megumi Kiyozuka, a former director at Carlyle Group’s Tokyo office. It has raised $1.5 billion to date and backed around 30 portfolio companies, including fitness club operator Worldplus, IT services business Earth Technology and toy manufacturer Bloom Co.

Sunrise Capital IV reached final close after three months in market, according to a statement from the vehicle’s placement agent, Monument Group, on 24 September. Existing LPs accounted for 82 percent of investors by number and the process was entirely virtual.

“Due to covid-19 restrictions, this was the first virtual fundraise on which Monument Group advised and it could not have gone more smoothly,” Niklas Amundsson, a Hong Kong-based partner at Monument Group, said in the statement. “The raise was very quick, with many high-quality new and returning investors, indicative of their confidence in Sunrise and the continuing interest in mid-market opportunities in Japan.”

Last year, Tokio Marine Capital, one of Japan’s oldest private equity firms, rebranded to T Capital Partners after agreeing a management buyout with its former owner, Tokio Marine & Nichido Fire Insurance.

Japan’s mid-market is ripe for the private equity investment with a generation of businesses in need of succession plans. As of 2017, more than half of companies with a founder over 60-years-old and 34 percent of those over 80 had yet to name a successor, according to a BDA presentation from June 2019. A decade ago, 70 percent of business closures involved a founder over the age of 60 – a figure that had risen to 82 percent by 2016.

Growing acceptance of PE has translated to a larger number of buyouts, which have accounted for more than two-thirds of annual dealmaking since 2014. Prior to that, such deals tended to account for roughly half of annual volumes.