Global PE majors betting big on Japan, China

Global PE majors betting big on Japan, China

Tamagawa Dori, Tokyo, Japan. Photo: Thomas Schmitz/unsplash

Global private equity giants and asset managers are betting big on opportunities in Japan and China, despite stagnant growth and mounting geopolitical uncertainty in the respective regions.

“Everything’s on sale in Japan for people who have dollars,” said William Conway Jr, co-founder, interim CEO, and co-chairman of Carlyle at a panel discussion on the second day of the Global Financial Leaders’ Investment Summit in Hong Kong, organised by the Hong Kong Monetary Authority and the Hong Kong Academy of Finance.

Carlyle manages five Asia buyout funds, totalling $15.55 billion, and two China funds. In 2018, the firm raised $6.6 billion for its Asia private equity fund, its biggest at that time, exceeding a $5 billion target. The firm entered the Japanese market in 2000 and has made 31 investments in the country to date. Late last year, it scored its 20th exit in the Japanese market with the sale of Sunsho Pharmaceutical.

“In Japan, money is free, and you can member up your equity capital to do very large acquisitions,” said PAG chairman and CEO Weijian Shan, who moderated the panel. 

The panel also included Jim Zelter, co-president at Apollo Global, Luke Ellis, CEO of Man Group and Ben Way, group head of Macquarie Asset Management.

“It’s something to take advantage of,” said Conway. 

Private equity firms globally are sitting on large amounts of dry powder, but investors are encouraging deploying capital at times like this.

“The great time to invest in private equity is periods like this, where there is uncertainty and there is, unfortunately, not a lot of financing,” said Zelter. 

Apollo in June this year announced the launch of a $1.25-billion Asia-Pacific-focused credit strategy alongside Australian superannuation fund Hostplus to invest in deals across the region. Back in 2019, Apollo Global Management hired Tetsuji Okamoto, a managing director at Bain Capital, to head its operations in Tokyo, joining other global funds to set up shop in Japan.

“The irony is, much equity has been raised and there’s not a lot of financing for those transactions, so those levels will come down,” he said. “This lack of certainty and this lack of confidence — this is when you want to be putting money in the ground.” 

Private equity firms are facing crashing valuations and curbed asset sales as increasing inflation rates edge potential global recession onto existing macroeconomic concerns. 

“It was a very easy world to be an institutional investor — that world’s gone, we’re in a new paradigm, which I suspect will last years rather than months and in the new world, you need to be active in terms of your asset allocation,” said Ellis.

“The most exciting infrastructure market in the world is clearly China,” said Way.

In pursuit of its net zero goals by 2060, China has introduced new plans to promote green transition. In a new “five-year plan” targeting the renewable sector, China said it would aim for more than a third of its national power consumption to come from renewable energies by 2025. 

Investors, especially ones in Europe and the US, might be turning their heads when it comes to putting money in China due to a variety of risk factors, such as its regulatory crackdown, trade friction with the US and commitment to its zero-COVID policy.

“It’s very hard to bet against China when it comes to investing, particularly for people with a long view,” said Conway.

Private equity firms have invested more in Japanese businesses in 2022 than in all of 2021 mostly due to the country’s low-interest rates and stable regulatory environment, according to a S&P Global Market Intelligence report.

According to a recent Reuters report, Swedish private equity firm EQT has a near-record number of Japanese deals in its pipeline despite current market conditions. EQT has just completed a $6.7 billion deal to buy Hong Kong-based Baring Private Equity Asia (BPEA), combining the two firms’ Asia private equity businesses for global expansion. The merged team, BPEA EQT, has 15 members in Japan.

Bring stories like this into your inbox every day.

Sign up for our newsletter - The Daily Brief
Subscribe to Newsletter

You have 3 free stories remaining for the month. Register to continue reading our content