JAPAN OPENS UP

Japanese institutions are preparing to increase their private equity commitments by more than 20 percent per annum over the next five years. This is according to a new survey, “Japanese Institutional Investment in Private Equity: Experience and Future Trends”, which has identified three main reasons for their enthusiasm.

One is the steadily improving economic environment following the nadir of March 2003, when the Tokyo Stock Exchange reached a 20-year low. Private equity firms are increasingly being cited as the partners best able to assist Japanese companies in taking advantage of improved circumstances.

Says report co-author Motoya Kitamura of Mitsubishi Research Institute: “Local institutions now view private equity funds more as “revitalisation” funds than “vulture“ funds, especially when they are managed by local teams in Japan. There is a lot of excitement that private equity can wake up Japanese companies and force them to make the changes necessary to generate a healthy return on equity.”

The second reason is the establishment of buyout funds large enough for institutions to invest in. For example, Nikko teamed up with Citigroup to launch the Nikko Citigroup Japan Fund last month with a stated target of $950 million. Such developments are expected to attract Japanese pension funds, which according to the report account for just 13 percent of private equity allocations in the country at present (compared with a combined 85 percent for banks and insurance companies).

Finally, institutions seeking to make allocations for the first time are able to work with a growing advisory community, and to diversify their risk through funds of funds. According to co-author Simon Chadwick of placement agent Chikusei Partners, around 80 percent of Japanese institutional investment in private equity so far has been by direct means and only 20 percent through funds of funds.

These percentages will not pertain for long, says Chadwick. Last year AI Capital, a joint venture between Daido Life and Mitsubishi Corporation, raised $100 million for the first-ever Asian private equity fund of funds, most of which is being invested in Japanese funds. Meanwhile, Tokio Marine Asset Management Private Equity Group, which was launched to provide private equity advice to its parent company, is planning a global fund of funds and a gate-keeping service for Japanese investors.

The report forecast that Japanese limited partner investments would increase from $1.6 billion in 2004 to nearly $4.7 billion by 2008, though Chadwick says this is based on conservative assumptions that could be comfortably exceeded.

NIKKO, CITIGROUP LAUNCH $950M JAPAN FUND
Japanese broker Nikko Cordial has teamed up with US financial conglomerate Citigroup to launch a new $950 million (€772 million) buyout fund targeting Japanese companies. Citi and Nikko Principal Investments, the principal finance unit of Nikko, are both committing Y11 billion (€85 million; $101 million) to Nikko Citigroup Japan Fund, which is targeting a Y30 billion first closing. Nikko Principal Investments, which has completed more than Y30 billion of investments in Japanese companies since it was established in March 2000, said the fund would target a final closing of at least Y100 billion by March 2005.

Nikko spokesman Toshiharu Masuzoe said in a statement the fund would invest in around ten companies and that the first investment was planned for the next six months. Nikko Cordial director Hajime Yamamoto added that the fund would aim to invest in companies with growth potential rather than reviving bankrupt companies, which has been the more common approach by private equity investors in Japan to date.

CARLYLE MOVES INTO CHINA
Carlyle Group, the Washington DC-based private equity firm, has planted its flag in mainland China and opened a new office in Shanghai. Since 1999, Carlyle has conducted buyout, venture and real estate activities in Asia from offices in Bangalore, Hong Kong, Seoul and Singapore. The firm's three Asian funds have more than $1 billion in assets to invest in the pan-Asian region.

“We see an increasing number of significant investment opportunities in China,” said Xiang-Dong Yang, managing director and co-head of the Carlyle Asia buyout team. “This new office reflects our confidence in and commitment to investing substantial capital in China.” Despite not having had an office on the mainland until now, Carlyle has made a number of investments there. In December 2003, it listed online travel company Ctrip.com International on Nasdaq, having made an initial investment in November 2000. Also in December last year, it invested in Shanghai-based E-Power, an integrated circuit design company.

GARUDA LAUNCHES $100M INDONESIA FUND
Garuda Capital Partners is working on what it claims is the first major Indonesian private equity fund to be established since the 1997-98 Asian financial crisis.

Garuda, which is seeking to raise $100 million for its debut fund, is a partnership comprising Jakarta-based fund manager Batavia Investment Management, Sydney-based Asean Focus Group, the pan-Asian advisory and investment company, and the Habibie family. B J Habibie, the former President of Indonesia, becomes emeritus chairman of Garuda, while his son Dr Ilham Habibie, becomes a general partner.

Batavia is no stranger to management buyouts. In 2000 it was part of a consortium of investors that acquired PT Astra International, the Indonesian car manufacturer, for $220 million. PT Astra is now one of the country's best-performing companies.

GOLDMAN SACHS IN KOREAN MEDIA MOVE
Goldman Sachs' GS Capital Partners 2000 fund has acquired a 30 percent stake in C&M Communications, a South Korean cable television operator. The New York-based firm was reported to have paid W140 billion (€102 million; $121 million) for the stake, which makes it the company's largest shareholder. In 1998, Goldman acquired a 14 percent stake in Kookmin Bank for $500 million and reportedly tripled its investment from the subsequent sale of almost the entire investment in the business. Since 1999, it has invested a further $1.3 billion in South Korean companies including liquor company Jinro.

SHINSEI PLANS CHINA FUND
Shinsei, the Japanese bank that delivered a stellar return for US private equity backer Ripplewood Holdings when it was listed in February, may be about to launch a private equity fund of its own. Shinsei has held talks with China International Trust and Investment Corporation, the Chinese conglomerate, about setting up a $200 million fund to invest in Chinese companies. Such a move would be Shinsei's first foray into China and a rare alliance between financial services companies in Asia's two most powerful economies.

SPI GIVES GREEN LIGHT TO TH LEE
SPI Technologies, the Philippines-based business process outsourcing (BPO) provider, has recommended an $87 million offer from US private equity firm TH Lee Putnam Ventures. The deal will allow private equity firms Crimson Asia Capital, AIG and Electra Partners Asia to exit their combined 71 percent stake in the business.

The sale excludes SPI's majority holding in eTelecare International, the largest call centre firm in the Philippines, which plans to apply for a listing on the Philippines Stock Exchange later this year.

PACIFIC TO BUY ASPAC FROM WH SMITH
Pacific Equity Partners, the Sydney-based private equity firm, has agreed to buy Aspac, the Asia Pacific retail business of UK retailer WH Smith, for A$115 million (€70.9 million; $84.5 million). WH Smith disclosed the sale one day after announcing weak first-half results and also that it was opening its books to London-based private equity house Permira, which in April submitted a £940 million (€1.4 billion; $1.7 billion) offer for the newspaper distributor and publisher. Aspac operates 207 stores in the Asia Pacific region including the Whitcoulls and Bennetts brands in New Zealand and Australia's largest bookseller Angus & Robertson. It also has outlets in Hong Kong and Singapore. Pacific Equity Partners is one of the largest private equity firms in Australia, with around $300 million of funds under management, and has a coinvestment arrangement with Bain Capital of the US.