FGF has raised US$55m (€38m) for its first closing, with GIMV committing US$15m (€10m) as sponsor and BASF Venture Capital contributing US$2m (€1.4m). FGF plans to invest an average of US$3m to US$7m per company in 20 to 30 companies by 2017.
The fund will be independently managed by FinTech Global Capital, founded by former managers of NIF Ventures.
Japan does not only combine a growing number of university spin-outs, with a superior IPO environment, but it also has a growing and dynamic venture capital market. GIMV’s and BASF Venture Capital’s technology companies will be able to use this Japanese partnership as an introduction to the broader and fast growing Asian market.
Dr. Knut Eichler, investment manager at BASF East Asia Regional Headquarter Ltd, said: “Japan is a global front-runner in megatrend technologies. Our investment in FGF gives us a first-class view of Japanese technologies at an early stage of development and increases our access to Japanese start-ups. FGF’s experienced management is an additional benefit.”
The buyout market in Japan is proving equally popular. According to the Japan Snapshot of Coller Capital’s Global Private Equity Barometer, LPs expect Japanese buyouts to outperform European and American buyouts. The research revealed that over 70% of LPs investing in Japanese buyouts have achieved net returns of 16%-plus from the sub-asset class since they began investing, and more than 80% of investors expect to achieve returns of this order over the next three to five years. This would be significantly higher than the return LPs expect to achieve from European or North American buyouts over the same period.
As a result, almost two-thirds (62%) of Japanese buyout investors plan to increase their allocations to the sub-asset class over the next two years.
There are, however, marked differences in how domestic and foreign investors believe the Japanese market is best approached. Domestic LPs are almost unanimous in the view that Japanese-managed funds offer the best (though not the only) way to invest in the Japanese private equity market, whereas foreign investors are more ambivalent: a significant number believe Japan-focused funds managed by a foreign GP franchise offer the best route, and another sizable group sees pan-Asian funds as the best way of investing in Japanese private equity.
In investors’ minds, the biggest risk to Japanese private equity is simply that the market will overheat. However, over 40% of LPs are also worried about the possibility of adverse changes to the regulatory or tax regimes. In the case of tax this could be particularly damaging, since over a third of LPs with investments in Japanese private equity view the asset class’s current tax treatment as unfavourable.
Hiro Mizuno, a partner at Coller Capital, said: “Institutional investors recognise Japan’s attractions as a location for private equity: a strong economy, sophisticated capital markets, and readily available bank debt. Japan’s corporate world, too, is becoming increasingly open to the ideas and skills that the private equity industry can bring to bear. As long as the Government plays its part by ensuring an acceptable tax and regulatory environment, all the fundamentals are in place for a significant expansion of private equity investment in Japan.”