Japanese Pension Plans Seek Distressed Debt PE Funds
During the past two weeks, BHA gathered more than $40 million in mandates from Japanese investors looking for private equity funds focusing on distressed opportunities. Two large corporate pension funds are among those investors looking to make new commitments to this strategy during 2010. Each is seeking one or more funds focusing on the U.S. or other developed markets. Additional mandates came from a Japanese insurance company as well as a fund of private equity funds that also want to capitalize on distressed opportunities in the U.S.
While distressed opportunities within the private equity space have been in high demand over the past few quarters, it is interesting to see such a high demand from Japanese institutional investors, and especially corporate pension funds.
Japan’s corporate pension funds experienced significant losses for the fiscal year that ended March 2009, as its economy officially entered a recession in October 2008. Throughout 2009, mandates for private equity funds from Japanese pension funds were few and far between. BHA learned through its discussions with these investors that many were waiting for signs of stability in their economy before entering into new commitments, whether in domestic or international markets. As their 2009-2010 fiscal year came to an end on March 31, the rate of return on their current investments reached approximately 13.8 percent.
Based on BHA’s recent conversations with these investors, it appears as though this rate of return gave them a sense that economic stability is starting to settle in. As a result, they have started to join U.S., European, and neighboring Asian-based investors that believe that the distressed private equity market in the U.S. is favorable, both for turnarounds and for distressed-for-control situations.
It is also important to note that about 75 percent of these investors are looking for experienced management teams that are targeting a fund capacity of more than $500 million. The investors have no deadline on making new commitments, but the capital is on hand to allocate. Providing they find qualified and compelling funds, commitments should take place by mid-year.