Breakingviews - Blackstone hunts Japanese deals – and pensions

HONG KONG (Reuters Breakingviews) - Blackstone is raising its game in Japan. This week, the U.S. private equity giant hired Katsuyuki Kuki, a former top JPMorgan banker, as local chairman. It could also do Japanese deals through its first dedicated Asian buyout fund, which could raise up to $3 billion, says Reuters. The moves show a bigger commitment to a country where Blackstone has trailed rivals, and position it well for a share of a big new pot of money earmarked for alternative investments.

A wash of Japanese pension cash is about to pour into hedge funds, real estate, and private equity. Japan’s $1.3 trillion Government Pension Investment Fund has begun hiring alternative asset managers as part of an initiative to generate higher returns on state retirement funds. It could invest up to 5 percent of its assets this way. Japan Post Bank, the state-backed giant with roughly $1.9 trillion of assets, has also begun an aggressive push into assets other than traditional stocks and bonds. Smaller state pension funds are likely to follow suit.

Unlike rivals Bain and KKR, Blackstone has so far focused on Japanese real estate and not corporate buyouts. A wider remit will show it has a bigger commitment to investing in Japan, and not just taking money out, which could help win over big public sector clients.

The big prize on the capital-raising side would be snagging a so-called “separate account mandate”. Under such a deal, which can run into billions of dollars, an investment manager handles a standalone pot of money for a big institutional client.

Entering Japan for buyouts now is also smart. This is a tiny market relative to the size of the economy: private equity buyers struck $8.1 billion of deals in Japan last year, versus $135 billion in the United States, according to Thomson Reuters data. But KKR has pulled off some big acquisitions, suggesting corporate attitudes are changing, and corporate reform should lead to more sell-offs of non-core businesses. Valuations are low versus other mature markets, and financing is cheap. This could be a good time to expand in Tokyo.