The three stages of Japan

Shakespeare defined seven ages of man. John Singer reflects on three phases of private equity evolution in Japan – which has spanned little more than a decade but must feels like a lifetime, such is the pace of change.

The much quoted managing partner of Advent International in London warmed to his theme as he looked back with satisfaction on the 14 month fundraising exercise that created Advent’s first Japan only fund.

The ¥60bn Advent Japan Private Equity Fund (JPEF) reached its target shortly before the close was announced in September. It is also the first industrially-focused, mid-market Japan fund raised by an international private equity house.

“No first time fund is a cinch, but the response was encouraging,” said Singer. “Though we were still talking to other people, we closed it when we reached the maximum that we had set.”

From distressed to partnerships

He told EVCJ he expects JPEF to make its first investment in 2009 from one of the four sectors on which Advent is to focus in Japan – healthcare and life sciences, industrial, retail and consumer, and support services

The four staff at Advent’s Tokyo offices, which it opened in 2001 after 14 years of working in country, mainly through blue-chip corporate venturing relationships, had expanded to nine by late October. Singer expects further recruitment to take the head count to 12 by the end of the year.

The reason for his enthusiasm is that he feels the general industrial approach Advent takes is now “relevant and appreciated”. He sees PE activity in Japan now entering a more industrial phase, its third incarnation in a rapid, three-stage development since the turn of the decade.

Before 2003, local players such as Unison and Advantage, and some international firms, were focused on distress on the back of Japan’s ‘lost decade’ of stagnation. Between 2004 and now, the spotlight was been on balance sheet restructuring.

The cycle has again moved onto partnering industry and adding value to companies that would benefit from improved operations and management techniques.

“We’re looking at four or five interesting situations, but the gestation period for transactions in Japan is longer,” Singer said. “Getting to the bottom of financials also takes a bit longer. We’ve allowed for that by saying it will be a five year investment period. We are not going to be rushed and we want to do the right investments right from the start.”

He sees three strands of opportunity in the four sectors on which Advent intends to concentrate: consolidation and integration, internationalisation, and restructuring family/founder businesses.


As a fervent apostle for private equity – not least when he was chairman of the European Private Equity & Venture Capital Association (EVCA) – he sees scope for Advent to help nurture the industry’s growth in Japan.

“Best practice can win converts, and Japan is where we have to do that. The whole issue of image is starting to be discussed in Japan, and case studies will be crucial, as they are in Europe. We have a social duty to present the face of PE that builds value.”

He recently wrote to EVCA secretary general Javier Echarri urging closer links with Japan’s separate private equity and venture capital associations and with the country’s Ministry of Economy,Trade and Industry.

“The Japanese would welcome more links with Europe to discuss position, branding and so on,” Singer said.

John Ehara, partner at Unison Capital, and a former chairman of the Private Equity Association of Japan, welcomes the insights that foreign firms have brought to the industry’s deliberations on policy, communications and lobbying.

“They are very useful and active. I don’t differentiate between non-Japanese and Japanese. As long as there is something that they can bring to this community, I welcome them.”

A need for growth

Small wonder: private equity in Japan needs to grow to accommodate the ambitions and fundraising of both domestic and international players.

With private equity investments representing only 0.3% of GDP, penetration in Japan is the lowest in any Asian economy, and caution among Japanese financial institutions has not helped.

In a study in 2007 and early 2008, Swiss based fund of funds Adveq concluded that Japanese institutional investors were on average allocating only 0.4% of their total assets under management to private equity.

Although the same survey found that this was set to increase to 1.3% within two to five years, some observers believe the position will have changed due to recent turbulence.

“They are questioning if it is the right time,” said Ehara. “Given the negative experiences that they have had throughout their portfolios, I’m pretty sure that they will have to revisit their asset allocations from ground zero.”