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Finance

Carlyle plans $2.3bn Japan fund on reorganization expectations

US private equity firm anticipates companies unloading noncore businesses

The Carlyle Group has invested billions of dollars in Japan since 2000.   © Reuters

TOKYO -- U.S. private equity firm Carlyle Group says it will soon set up a 258 billion yen ($2.31 billion) fund to invest in Japanese companies, the largest ever of its kind.

Carlyle began raising money for its fourth Japan-focused buyout fund last year as Japanese companies unloaded more noncore businesses amid an increased focus on corporate governance. The firm sees the economic disruption from the coronavirus pandemic potentially accelerating this trend.

Including both cash and borrowing, the fund will have a total of about 500 billion yen to invest, giving it the ability to target larger companies. It will also consider buying out family-dominated firms faced with succession vacuums.

In keeping with its size, the buyout fund will have a term of 12 years, longer than the usual 10. The first six years will be spent making investments, with the remaining time to be used to improve the profitability of the companies in its portfolio, then sell or list them to recoup its investments.

The fund will initially be based on a capital call model. Investors commit to providing money, but will actually pay only when the fund identifies a target.

Fund investors will include Japanese and foreign pension funds, insurers and government-affiliated funds. The presence of institutional investors with relatively large asset pools and long time horizons should ensure that capital keeps flowing to the fund even with the coronavirus rattling markets.

Washington-based Carlyle had $224 billion in assets under management at the end of 2019. It began operating in Japan in 2000, when foreign funds had a relatively small presence there. The firm has invested more than 300 billion yen there so far, including its participation in last year's acquisition of Okinawa's Orion Breweries.

Firms inside and outside Japan, including such big names as KKR, have been ramping up the scale of their Japanese investments. The addition of Carlyle's record-breaking fund will make it easier for companies to find buyers for operations or subsidiaries they hope to sell.

The new fund will be more than twice as large as Carlyle's last Japan buyout fund and top the previous high set by a 215 billion yen fund launched in 2006 by Tokyo-based Advantage Partners.

Data from Japanese mergers and acquisitions advisory firm Recof shows 293 deals involving sales of Japanese businesses last year, up 11% from 2018 and the most since 2010. This year is on track to exceed that total, with 63 sales through February, reflecting the large number of companies burdened with money-losing or barely profitable operations.

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