Side Letter: Japan’s LP evolution; PE fundraising flexibility; Hahn’s $3bn plans

Japan's increasing comfort with secondaries and ESG-related investing suggests the LP landscape is maturing, in spite of a talent crunch. Plus: How GPs can adapt to a more challenging fundraising environment; and Korea's Hahn & Co is eyeing more than $3 billion for its next fund. Here's today's brief, for our valued subscribers only.

Just happened

Japan’s LP landscape: Developing nuanced appetites (Source: Getty)

Japan’s PE milestones
Japan’s exciting potential as a substantial, albeit somewhat nascent, source of private equity capital has long been documented. Two rising trends in the market – both explored in Private Equity International’s Japan Report 2022 this week – shed fresh light on how the country’s alternatives landscape is maturing.

The first of these is Japan’s increasing comfort with, and appetite for, GP-led secondaries transactions. Such processes have come to dominate global secondaries activity as sponsors and LPs recognise their use in holding on to prized assets, bolstering distributions and aiding fundraising efforts.

Japan, a market traditionally more seller driven than asset driven, is starting to see more firms exploring GP-leds either to buy more time for assets disrupted by the pandemic or to circumvent exposure limits. The secret to the strategy’s rising acceptance in Japan may well lie with its LP community, many of which have already experienced such transactions through their Western GP relationships. More on that here.

Another sign that the domestic LP market is becoming more familiar with private markets investing is the increasingly widespread adoption of ESG – to some extent a bellwether of investor sophistication – and emerging appetites for impact investing (ESG is now commonplace, while impact is a relatively new development). An indication that Japan’s financial sector is waking up to impact investing came last November when 21 leading institutions – including MUFG Bank, the country’s largest – formed the Japan Impact-driven Financing Initiative. Read on here.

Still, there may be a temporary limit to the growth of the country’s private equity market in the form of a talent shortage. There are not enough experienced dealmakers, investors and operations professionals with the requisite language and cultural understanding, or experience in private markets – a problem faced by even one of its largest institutions. Find more on the country’s talent crunch here.

Three fundraising observations
Sponsors on the hunt for new investors are facing an uphill battle. It’s no secret that a one-two punch of the numerator and denominator effects, coupled with a wave of delayed and on-schedule fundraises heading out to market all at once, is forcing many investors – whether they like it or not – to solely focus on re-ups. How can GPs adjust to such a dynamic? That’s a question Side Letter put to one London placement agent last week. Here’s what they’re telling GPs:

  • Consider a rolling close. Raise 20 percent of the fund, for example, hold a close, start investing, rinse and repeat.
  • Fundraises might need to take longer. Some LPs are asking GPs to remain open in 2023 because they’re unable to fund a commitment or are offering smaller tickets. As a result, we may see smaller funds compared with previous vintages.
  • Sweeten the deal. Some GPs are trying to butter up investors with the dangled carrot of co-investment or continuation funds, on the proviso they allocate to their fund alongside the same timeline.

Essentials

H-EY big spender
Accounting giant EY plans to spend $1 billion over the next four years to develop its PE offering, it said last week. That sum will help to double the size of its PE practice, with key investments being made in recruitment and training of talent. It will hire from other professional services firms and through acquisitions, focusing on its capabilities within value creation and portfolio transformation, transaction deal leadership and ESG services. Leading the global expansion will be Bridget Walsh, formerly EMEIA managing partner.

As PE fundraising climbs to record-breaking levels, the financial industries around the asset class have clearly recognised the need to keep pace.

Hahn’s big plans
Korea’s Hahn & Co is seeking $3.25 billion for its fourth flagship fund, according to AVCJ. Like its 2018-vintage predecessor, that total will include a co-investment sidecar. The Seoul-based firm gathered $3.2 billion for Fund III, comprising $2.7 billion for Hahn & Co III and an additional $500 million for a co-investment fund investing alongside it. South Korea’s deal value more than doubled to nearly $30 billion last year, a 116 percent increase from the previous five-year average, buoyed by four megadeals – a record count for the country, according to Bain & Co.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

13 June

14 June

15 June

16 June 

17 June


Today’s letter was prepared by Alex Lynn with Madeleine Farman and Helen de Beer