Despite being home to the world's largest pension fund (and three of the world's top ten), Japan's contribution to the coffers of private equity funds has to date been relatively ungenerous. A recent survey from Swiss fund manager Adveq and Kyoto University confirmed that this remains the case, while suggesting that Japanese inflows into the asset class may become a little more meaningful in the years ahead.
The sobering news first. Of 171 Japanese institutions that actually responded to the survey (over 1,400 declined to), only a quarter are currently investing in private equity at all. Of these, the average allocation is a measly 0.4 percent of total assets under management.
Now, the more encouraging news. Over the next two to five years, the proportion of Japanese institutions allocating up to 5 percent of total assets to private equity is set to double from 14.3 percent to 28.6 percent, while those allocating up to 10 percent will rise from 2.9 percent to 8.6 percent. This will push the average allocation level up more than three times from 0.4 percent to 1.3 percent.
While this is an encouraging development, it's not a seismic one when you consider the raw numbers it implies. At present, Japan's private equity supporters have a total of ¥0.38 trillion ($3.2 billion) invested in the asset class. Over the next two to five years, this is tipped to rise to $10.5 billion. In context, global private equity is predicted by UK data provider Prequin to raise as much as $500 billion this year.
Another trend identified by the survey is the high performance expectations that Japanese investors have. The Japan survey was the latest in a series of international studies undertaken by Adveq to identify LP attitudes around the world. In all previous cases, investors said they expected private equity to outperform public markets by between 350 to 500 basis points. In Japan, by contrast, the margin expected is a lofty 670 basis points.
Hence, private equity has a tough job on its hands to keep its slowly growing Japanese client base happy. Should returns begin to decline, they will likely be among the first to grow disillusioned.
LONE STAR HITS BACK AT KEB ACCUSERS
Lone Star chairman John Grayken has hit back at criticisms of its acquisition of Korea Exchange Bank, a 2003 deal that state auditors have found to be illegal and improper. Grayken questioned the Board of Audit and Inspection's accusation that a mid-level government bureaucrat together with the former bank president and the bank's sale advisers had conspired to exaggerate the bank's financial troubles. Grayken said it was “impossible to accept” the conclusions of the board, which according to news agency Yonhap said: “The 2003 approval was inappropriate and flawed because it was based on financial data that inflated the bank's losses and the Financial Services Commission approved the deal knowing that Lone Star was not qualified to take over the bank.” In a detailed rebuttal, Grayken argued that the auditors' conclusion on the basis of the bank's BIS ratio – a measure of its financial status – was flawed in itself.
TPG BUYS MINORITY STAKE IN JAPANESE TOYMAKER
US buyout firm TPG has made its first lead investment in Japan, taking a minority stake in TOMY as the country's second-largest toymaker looks to boost overseas sales. TPG has bought a 14 percent stake in the firm for around $90 million. The move is intended to facilitate TOMY's attempts to increase its overseas sales, which currently account for just 15 percent of the total. Specific details of the deal, which has been billed a “business alliance”, have not been disclosed. However, TPG has already appointed two executives to the TOMY board: Jun Tsusaka and Akio Ishida have both joined as directors.
ARCHER CAPITAL SEALS REBEL DEAL
Archer Capital has bought Rebel Sport, a listed Australian sporting goods retailer, for A$369 million ($283 million). The Australian private equity firm won approval from 76.69 percent of shareholders, including Gerry Harvey, who owns 53 percent. Harvey had been very vocal in his support of the take-private, criticising three institutional investors which had been trying to prevent the deal from happening. The three investors, who control a combined 24.55 percent stake, have been described by Harvey as “mad monkeys”. Two of the three, Paradice Investment Management and Perpetual Investments, bought more shares in Rebel in order to build their voting rights to a combined 18.35 percent. According to local newspaper The Australian, Harvey said: “The three musketeers would be mad monkeys if they voted against the offer, because Rebel's share prices would drop to buggery.”
PRINCIPLE ADVISORY SERVICES APPOINTS CHAIRMAN
Principle Advisory Services, a Sydneybased placement agent and strategic advisor, has appointed John Rickus as chairman. Rickus is a former trustee of one of Australia's largest occupational- based funds, Motor Trade Association of Australia. He joined the auto industry superannuation fund in 1995 and was independent chairman from 1996 to 2006. He was previously a company secretary and accountant at Yorke Motors Adelaide, a Mitsubishi dealer, which he became a part owner of in 1980.
AIG FUND CLOSES SHORT OF TARGET
AIG Global Investment Group (AIG GIG) has missed its fundraising target by $90 million (€69 million), raising $410 million of a planned $500 million for its Asia Opportunity Fund II. The fund has already committed about 15 percent of its capital to three investments: Tiangong International Company, a Chinese steel manufacturer; Firepro Systems, an Indian building systems company; and $21 million to Alticast, a Korean business that provides services to cable companies. In addition to the fresh capital, AIG's Asian private equity business has access to another $410 million from AIG Global Emerging Markets Fund II, a 2005 vintage.
ORIGO IN RAPID GAMES GAIN
Origo Sino-India, a Chinese and Indian private equity firm, has achieved a swift capital appreciation of about 20 percent on the stake that it bought in Chinese online games business Possibility Space. In February, Origo bought a 15 percent stake in the firm for $1.5 million (€1.1 million), which valued it at $10 million. CDC Games, a Nasdaqlisted online games company, recently bought a 17.24 percent stake in the business, which valued it at $12 million. Origo raised £12.8 million (€18.8 million, $24.7 million) from its flotation on London's Alternative Investment Market in December 2006. It has also bought a 10 percent stake in Asia Weekly, an English language magazine distributed in Hong Kong, China, India and the Philippines.
WI HARPER CLOSES $133M FUND
San Francisco- and Beijing-based venture capital firm WI Harper has closed its sixth fund on $133 million (€101 million), bringing its total funds under management to more than $400 million. Two-thirds of the fund will be invested in early-stage companies in China, and the other third will be invested in US companies with a presence in China. The fund, WI Harper INC Fund VI, has already made eight investments in China, three in Taipei and two in Silicon Valley. The Chinese investments include web browser Maxthon, photo image company Panorama Stock, and iKang, a healthcare services provider. WI Harper has offices in San Francisco, Beijing, Taipei and Singapore, and has invested in more than 90 companies in China and the US.
COLES TAKES A STAND AGAINST CLUB DEALS
Australian retailer Coles Group has again shunned its private equity suitors, reportedly insisting that a bidding consortium is cut from five firms to four. Coles is insisting on the limit to the size of bidding groups as it looks to increase price competition in the sale process, according to Reuters. A spokesman said the company would use “strict protocols” to ensure a “rigorously competitive” process. The move will come as a blow to Kohlberg Kravis Roberts, which is currently leading a five-strong consortium trying to buy Coles. Once again, KKR has teamed with rivals Carlyle Group, CVC Capital Partners, Texas Pacific Group and Blackstone Group to bid for Coles – the same group that saw an A$18.2 billion ($13.8 billion) bid rejected last year. If Coles enforces its bidding rules, at least one of the five firms would have to miss out.