The future is yen

Japanese institutional investors plan to triple their investment in private equity over the next two to five years according to research conducted by Swiss fund-of-funds Adveq and Kyoto University.

The study found that 25.2% of institutions already invest in private equity, with most investing after 2000. Allocation levels remain low at present. Sixty percent have an exposure accounting for less than 1% of total assets under management, but the number of investors committing up to 5% will double from 14.3% to 28.6%, and those allocating up to 10% will increase from 2.9% to 8.6%.

However, it’s important not to get too carried away. At present, the average allocation by Japanese institutions is a paltry 0.4%. The study shows that this is set to triple within the next two to five years to a still not very impressive 1.3%.

Japanese investors overwhelmingly prefer to get their private equity kicks from direct fund investment, with 63.65 opting for this route, but over the next two to five years this percentage is expected to drop to 60.5% whilst fund-of-funds investment is set to increase from 16.4% to 21.5%.

Non-Japanese firms hoping for a flood of money from the country’s top institutions will be disappointed though. At the time of the study, 67.3% of private equity commitments are directed to domestic funds. Despite expecting this figure to drop by 4.1%, allocation to overseas opportunities will increase only marginally: Asia is set to rise by 2.5% and the US and Europe by 1.4%.