“We typically invest in overseas large-cap funds. However, we expect to create a more diversified private equity portfolio focused on mid-cap or small-cap funds globally”
“We now have about 15 professionals in our private markets team and expect to hire several professionals within the next year”
…Japan Post Bank’s alternatives allocation
“At the moment we are in discussions to re-calculate and re-optimise our portfolio given that Japanese banks are navigating through an era of negative interest rates. The result may change a bit, but this hasn’t been decided”
Japan Post Bank, the country’s largest private equity investor by assets under management, is looking to tap into investment opportunities in Japan’s small to mid-market space through co-investments.
Tokihiko Shimizu, managing director and head of private markets investment at Japan Post Bank, tells Private Equity International the investor “expects more and more dealflow in Japanese private equity, especially because of homegrown private equity firms focused on the mid-cap and small-cap space”.
To capture these opportunities in the domestic market, the bank will look closely at more co-investment or club deals with GPs as it retools its alternatives portfolio.
Shimizu will not be drawn on the investor’s current GPs and co-investment commitments, but it was understood to be part of the consortium of investors including KKR, Western Digital, Development Bank of Japan and the Innovation Network Corporation of Japan that lost out to a Bain-led consortium in the race to acquire Toshiba’s chip unit in a deal valued at around $18 billion.
“Japanese society has not produced a lot of big opportunities in private equity for a long time. However, Abenomics has shone a light on the problem – that the lack of dealflow came from a lack of good corporate management,” Shimizu says. He adds that the implementation of the Stewardship Code in 2014 by the Japan Financial Services Agency and the Corporate Governance Code, which took effect in 2015, will significantly improve the return on equity of Japanese-listed companies. “Now we expect companies will be selling down their non-core business or real estate in order to improve their return on equity.”
Succession issues in small and medium enterprises as well as in the country’s service sector, which contributes around 70 percent to Japan’s GDP, also offer attractive investment opportunities for Japanese and foreign investors, Shimizu adds.
Japan Post Bank manages ¥209.6 trillion ($1.9 trillion; €1.6 trillion) of assets, according to its latest annual report. The bank has a target allocation of 3 percent of its AUM or as much as $60 billion for alternative investments, which includes private equity, hedge funds, infrastructure and real estate.
Shimizu says the bank’s private equity programme expects to allocate more than 70 percent to primary investments, between 20 percent to 30 percent to secondaries, and the rest in co-investments in the first three years.