Published: February 21, 2007, Financial Standard

Japan set to jump on global PE train

by Hamish Madden

A study conducted by Adveq, the Swiss private equity fund of funds manager, has found that Japanese institutional investors are set to follow Australian investors and institutions the world over in increasing their private equity allocations.

The study found Japanese allocations to private equity is set to triple over the next two to five years. So far 25.2 per cent of Japanese institutions are investing in private equity, although the majority only began doing so after 2000.

The survey found that although current allocations are small, the number of Japanese institutions investing 5 per cent or more in private equity will double to 28.6 per cent in the next two to five years while those allocating 10 per cent will almost triple to 8.6 per cent.

The survey also revealed Japanese institutions will increasingly look to international private equity vehicles and fund of funds to park their allocations. While direct company investment still expected to remain the dominant form of private equity investment at 60.5 per cent, private equity fund of funds investment is beginning to climb, reaching 21.5 per cent in the near term.

And while 67.3 per cent of private equity investments are domestic, this is set to give way to an international focus over the next two to five years.

“This study confirms that Japanese institutions are increasingly focusing on private equity as a component of their equity portfolios. The percentage allocation to private equity looks set to grow significantly in the coming years,” said Bruno E Raschle, managing director of Adveq.

“As private equity is still at an earlier stage in Japan relative to other markets, and particularly due to the anticipated shift towards greater overseas private equity allocation, we expect fund of funds will play an increasingly important role in assisting Japanese companies in developing their private equity investments.”