JST’s Tomita: GP ‘winners and losers’ will become clear

The private equity head at Japan’s ¥10trn university endowment tells PEI how the fund views private markets in the current environment, and why it’s bullish on secondaries.

At a time when some Japanese institutions are suffering from budgeting issues, the country’s newest and largest university endowment finds itself in an appealing position.

The Japan Science and Technology Agency’s ¥10 trillion ($75 billion; €71 billion) endowment is piling into alternative investments to honour its government-appointed mandate of returning 4.38 percent each year. Private equity will likely play a substantial role in meeting these aims.

Yasuyuki Tomita is the executive tasked with leading JST’s entry to the asset class. Tomita joined the fund as head of private equity investments in 2022 after two decades at Development Bank of Japan.

JST’s private equity charge will initially be made through gatekeepers before gradually increasing its allocation to direct fund commitments, Tomita told Private Equity International at the time of his appointment.

Though Tomita is not permitted to disclose specific details about the fund’s portfolio or investment activity, PEI reconnected with him in March 2023 to discuss how JST is thinking about private markets in this year’s challenging macroeconomic environment.

You have mandates for both private equity and secondaries. What are you looking for in the latter?

Both LP-led and GP-led opportunities are very attractive to us in terms of J-curve mitigation. What we see this year is that LP interest transactions are likely to increase because many US and European investors are suffering from overexposure and the denominator effect. I like these opportunities because they allow us to access the old vintage funds and mitigate the J-curve. Our PE programme started last October, so I want to access vintages from before that time.

Some Japanese investors have been impacted by the yen’s decline last year. How are you dealing with this?

The yen’s depreciation has caused our annual commitments to decrease in terms of US dollars and the euro. I believe that a consistent commitment pace is critical in private equity, and JST is still at the stage of accumulating PE assets. So currency fluctuations don’t have a significant impact on our commitments in this environment.

Some investors have grown more cautious about sectors like tech this year and pivoted towards more defensive strategies. Are you thinking about that?

I think growth funds and late-stage VC funds which have been invested over the past two years would face challenges from a prospective downturn in the short term. Even for other strategies like buyout, I think the winners and losers of the GPs will become more distinct than they are now. So I will cautiously look for changes in their performance, company by company, and reflect that analysis in our portfolio management.

Private markets valuations are on everyone’s mind this year. Are you concerned at all about their resilience relative to the public markets?

The most important way [to value assets] for me is to check the actual revenue EBITDA, debt and equity value of portfolio companies… GP valuations vary depending on the [performance of the] public markets, so I’d rather check these performance numbers by ourselves.

“I believe that a consistent commitment pace is critical in private equity”

Yasuyuki Tomita
The Japan Science and Technology Agency

The venture capital space especially will face challenges in terms of valuation this year, but that can be seen as a positive sign. It’s an ecosystem that is so dynamic that if one technology collapses, another will come in. That is what we learned from the past recession. So I hope that VCs will chase such innovative trends and introduce us to good opportunities.

You’ve been active in Europe and the US. How do you view Asian private markets?

At this moment the Japanese PE market hasn’t faced any major problems, though local banks are more concerned about LBO financing, and in some cases I have seen interest rates rising, so gradually the US and European environment has been moving into the Japanese market.

But generally there are many succession events happening in small and mid-sized Japanese enterprises, which are really positive for new investments and add-on opportunities. Large Japanese corporations in the industrial sector are very sensitive to macro market trends, so we’re cautious about these.

For the rest of Asia, I really look forward to taking opportunities in Southeast Asia as many GPs are moving their targets there. This market will become more sophisticated.

As to sourcing Japanese PE professionals, has the influx of global GPs to Japan exacerbated this problem for domestic players?

It’s true that large GPs can pay high compensation, but there are many Japanese PE managers who focus on the mid-market. A lot of these individuals want to stay in the mid-cap space and help with business succession and operational improvements for SMEs. And, at least at this moment, there are few deals in the large-cap space – these investors want to be doing lots of deals.

There are positive signs of greater mobility on the LP side than a few years ago. So far, lifetime employment has been regarded as the normal culture in Japanese financial institutions, but now the younger generation feel free to change their jobs to get their professional career. That’s rapidly changing the job market in Japan.