Buyers anticipating a Japanese free-for-all may have to wait

Norinchukin Bank’s $5bn portfolio sale is driven by regulation, but it may well be some time before similar deals come to market.

This job is often about distinguishing coincidence from trend. In the space of six months Japan’s Norinchukin Bank has offloaded two giant private equity portfolios – $1.3 billion and $5 billion – the latter being bagged by Ardian this week.

This raises two questions: what is driving these deals and are there other Japanese banks waiting to do something similar?

The answer to the first question, ‘regulation’, is what makes the answer to the second question ‘no’.

Unlike other mega-banks, Nochu, as it’s known, was exempt from having to comply with the stringent capital requirements of Basel III. It serves agricultural, fishing and forestry co-operatives, so was not considered a commercial bank. This was until five years ago when the other banks lobbied to drag it into the fold, according to an Asia-based funds lawyer. Nochu is doing now what its contemporaries did then.

Compliance for Nochu required more drastic action, too. The bank has invested steadily in alternatives for more than 20 years, unlike many other Japanese banks, which only accelerated their pace of investment over the past five years in order to counter the negative interest rates of Japanese sovereign bonds. Nochu’s ratio of private equity assets to total AUM was far higher than that of its contemporaries, Secondaries Investor understands.

So no more Nochus in the near future, we believe, but that doesn’t mean no more sales. According to a senior lawyer on the ground, a number of mega-banks are considering selling non-core positions and reallocating away from private equity in favour of private debt, which has a lower risk-weighting under Basel. Those staying with PE may well opt to double down on core relationships to make compliance easier from an administrative perspective, removing the need to drill down into asset-level detail on hundreds of holdings.

“The problem with certain PE investments is they are very difficult to value, especially VC,” says the lawyer. “They default to probably the worst risk weighting and that’s why they [banks] are getting rid of them.”

In addition, according to a senior executive with a Japanese asset manager, Japanese insurance companies have begun readying for the introduction of similar capital adequacy requirements to their industry. Although this is likely to be years away, Secondaries Investor understands, the country’s banks were among the first and most stringent adopters of new regulation and its insurance companies could be similarly prompt to react.

For secondaries buyers, while gratification will be deferred, a Japanese regulatory sell-off may well come.

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