Just happened

Japan’s $18bn non-starter

The Japanese government has shelved Japan Investment Corporation’s $18 billion fund – designed to invest in domestic and overseas tech companies to revive Japan’s industries – amid public outcry over executive pay. JIC was supposed to deploy the capital across four funds: JIC-US (targeting biotech companies in the US), as well as three other funds that will co-invest alongside private equity and venture capital firms.

What went wrong? Senior executives were expecting as much as $1 million each in annual pay, a sum deemed “inappropriate and too high” for the public to accept, according to the Ministry of Economy, Trade and Industry’s chief Hiroshige Seko. What’s more, the government and JIC management could not see eye to eye on the former’s role in investment decisions.

The result: nine out of 11 of JIC’s board of directors resigned in December, leaving the fund with “no work and no task” in the near-term, and with “no specific direction on when to restart JIC”, said one source with knowledge of the fund. Japanese GP sources tell us public investment funds like JIC have faced stinging criticism over the years for poor track record. “They come in and have the look and smell of GPs, but don’t really do PE,” says one Tokyo-based partner.

Very fast growth

Providence Strategic Growth – an affiliate of Providence Equity Partners – has been back in market with a new fund every 18 months since inception in 2015. This time, it is back in less than a year, seeking $2 billion for its fourth fund. PSG’s rapid fund deployment pace justifies the faster return to market, said a limited partner who committed to the latest fund. And of course, a strong fundraising environment helps.

Operator-led GPs

This year much of the sideline discussion at SuperReturn centred around the ascendance of operator-led private equity firms. Sector experts, often chiefs of former portfolio companies, are banding together to find businesses they can get hands-on with and hiring junior bankers to take care of the financial side. Three large institutional investors, completely unprompted, expressed enthusiasm for the strategy in conversations with PEI. While the idea isn’t entirely new, particularly in the US, LPs’ desire to see genuine value creation in their GPs’ portfolios suggests that its time may have come.

Essentials

It’s responsible investing time in New York! PEI’s Responsible Investment Forum New York opens today, and what better way to kick off proceedings than with a big name institutional investor: Kurt Summers, who as Treasurer of Chicago sits on four pension boards with $25 billion under management and manages the city’s $8 billion investment portfolio. If you are at the event, drop a note to isobel.m@peimedia.com or preeti.s@peimedia.com.

What firms are doing about diversity. Some essential reading on Infrastructure Investor offers candid views from senior investment professionals at the likes of Partners Group and Ardian about what their firms are doing regarding diversity among senior investment staff. We’ll publish an abridged version on PEI soon.

Inside tip

We will soon be publishing details of what some of Abraaj’s senior personnel are up to. A good number remain embroiled in what is turning into a lengthy sales process, but a few familiar names have cropped up elsewhere. Keep an eye out for the article later today. Any tips? Email alex.l@peimedia.com.

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including Providence, Abraaj and others from today’s Side Letter.

He said it

“There are too many parallels to 2008 for comfort… Built into this speculative episode, like its predecessors, is a euphoric flight from reality and a blindness to risks that continue to rise.”

In a Bloomberg op-ed, former banker Satyajit Das warns of the risks of collateralized loan obligations.

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Today’s letter was prepared by Toby Mitchenall, Preeti Singh, Carmela Mendoza, Rod James, Alex Lynn and Isobel Markham