Please tell us about the different funds of funds products you manage.
We manage two different families of funds of funds: one investing in Japan, and the other investing internationally. Our Japan-focused products are appropriate for both Japanese investors and international investors seeking diversified exposure to the Japanese market. We raised the first fund ever to target Japan in 2002 with Y12.1 billion ($110 million) in commitments, and so far we've committed approximately 60 percent to underlying funds. Our other line of funds of funds products is targeted at Japanese investors seeking exposure to the US and European private equity markets. These funds seek to invest in a portfolio of underlying funds diversified by geography, investment strategy and vintage year in order to generate attractive returns for our investors.

How big is the private equity fund of funds market in Japan?
As Japan is a relatively new market for private equity, the universe of private equity investors and service providers in Japan is still relatively limited. Several other institutions based in Japan manage funds of funds products, although to the best of our knowledge, we are the only firm managing a fund targeted at investing in Japan.

Who are you seeing as the most active institutional investors in the Japanese market?
So far, the insurance companies, major banks and several corporate pension funds have made up the majority of the commitments coming from Japan. Some of the big public pension funds have started to invest in this sector, but they don't play as significant a role as their counterparts in the US private equity market.

How has the Japanese private equity market changed in recent years?
Over the last few years in particular, the Japanese private equity market has matured significantly, drawing increased attention from both Japanese and international investors. Due to the bank loan crisis and worldwide recession, the pace of development and change in private equity slowed in the late 1990s through early 2000 but is currently back on track, thanks in part to some high profile buyout deals that are driving maturation. At the same time, the legal and institutional framework has been reshaped to accommodate Western corporate philosophy and financing methods. As the frequency and consistency of buyout transactions continue to increase in Japan, there is now greater awareness of the opportunity to generate returns in this market. Increasing activity in buyouts, combined with the larger deals and lower associated risk, is attracting the interest of private equity investors globally.

Do you think Ripplewood's success with Shinsei was a positive development for the market?
Initially, I think the Japanese business community was surprised by Ripplewood's hard-line approach with Shinsei, particularly regarding its aggressive actions to rationalise the bank's debt holdings and uproot the old management and strategy of Long-Term Credit Bank, earning it the term “vulture fund” in the Japanese media. But the company's improved performance and recent wildly successful public offering have silenced many of the critics. Also, the Shinsei deal has proved that it is possible to make strong returns investing in Japan, forcing many international limited partners to reconsider Japan as a geography where they want to have exposure.

Where do you see the most attractive opportunities in Japanese private equity at the current time?
At least for the near term, I think that the best opportunities are investing in underperforming companies and non-core assets divested by large distressed corporate sellers. Japan's economy is turning around, but there are still a lot of nonperforming assets out there that aren't being run efficiently yet. Moreover, recent government mandates requiring banks to work out their non-performing assets promises strong deal flow for the future.