Japan Post Bank, the country’s second-largest by deposits, wants to invest a third of its private equity portfolio into secondaries in order to gain earlier returns.
The Tokyo-headquartered bank expects to allocate 20-30 percent of its private equity programme to secondaries in its first three years, Tokihiko Shimizu, managing director and head of private markets investment, told sister publication Private Equity International.
“Our current private equity programme consists of primary investing, secondaries and co-investments,” Shimizu said. “An important thing for us in the first three years of our programme is to allocate more in the secondaries space in order to mitigate the J-curve effect better.”
More than 70 percent of its programme will be allocated to primary investments with the rest to co-investments, Shimizu said.
The bank established its private equity division in December 2015 with the aim of generating higher returns and diversifying beyond domestic bond holdings.
Japan Post Bank has a long-term target allocation for alternative investments of 3 percent of its ¥209.6 trillion ($1.9 trillion; €1.6 trillion) of assets under management. This means it wants to deploy as much as $60 billion for alternative investments, which includes private equity, hedge funds, infrastructure and real estate.
Its alternatives portfolio has a bigger weighting in overseas than Japanese investments.
The bank is also planning to tap into investment opportunities in Japan’s small to mid-market space through co-investments, according to Shimizu, who expects ”more and more dealflow in Japanese private equity, especially because of homegrown private equity firms focused on the mid-cap and small-cap space”.
Shimizu noted that in order to capture these opportunities in the domestic market it will look closely at more co-investment or club deals with GPs as it retools its alternatives portfolio.
Shimizu declined to comment on Japan Post’s GPs and co-investments commitments. The firm is reportedly in talks with a consortium of investors including KKR, Western Digital, Development Bank of Japan and the Innovation Network Corporation of Japan to acquire Toshiba’s chip unit in a deal valued at around $18 billion.
“Japanese society has not produced a lot of big opportunities in private equity for a long time,” Shimizu said. Abenomics – prime minister Shinzo Abe’s strategy encompassing monetary stimulus, fiscal flexibility and structural reform – has shone a light on the problem, namely that the lack of dealflow came from a lack of good corporate management, he added.