Carlyle closes $989m Japan buyout fund after slog

The US private equity firm's third Japan buyout fund closed after a protracted fundraising exercise that saw it enlist new and existing investors.

The Carlyle Group has raised ¥119.5 billion ($989 million) for its third yen-denominated buyout fund, surpassing its fundraising goal of ¥100 billion, the private equity firm said on Thursday.

The fund called Carlyle Japan Partners lll will target mid-cap companies across various sectors, the US private equity fund said in a statement. The fund already has already made four investments, a relatively swift pace although the firm's deal pipeline had become backed up.

The fund raising process has been exacting. “It’s been a very slow fund raise,” said one limited partner. It took about two years to raise the capital, he said.

"At the beginning it was very hard work for them but this year interest picked up," the investor added. This mirrored the performance of Japan's stock market which bounced earlier this year.  

Private equity has not been embraced by Japan companies to the extent it has elsewhere in the region, which may account in part for the fund raising slog.

Carlyle cut the size of its previous Japan buyout fund ¥165.6 billion in the wake of the global financial crisis from ¥215.6 billion, given how difficult it was to put money to work in the country.

Carlyle is no doubt keen to see the latest fund overcome some of the issues that beset an earlier buyout fund. The performance of Carlyle’s previous fund was “mixed,” according to the investor FinanceAsia spoke with.

Carlyle’s investment in AvanStrate (nee NH Techno Glass) has not performed well, the investor said, nor did Covalent Materials (formerly known as Toshiba Ceramics), which it has now exited.In contrast, China has take to private equity in a big way, transacting some $40.5 billion in PE investments last year and $25.9 billion so far this year, according to Asia Private Equity Review.

However private equity investments in Japan, which dipped to $2.3 billion in 2013 from $5.1 billion the previous year, have been somewhat mixed, data from the private equity equity research firm shows.

Private equity recorded $6 billion worth of transactions in 2014 but has only committed $2.1 billion so far this year.

Carlyle Japan's co-head Tamotsu Adachi said the firm sees growing investor interest in the country and that buyout opportunities are arising from companies as they focus on core businesses and succession planning.

Investments by CJP lll before final close include commitments to Sunsho Pharmaceutical, Oyatsu, Aruhi (previously known as SBI Mortgage) and Hitachi Metals Techno, according to the firm.

Both new and existing investors participated in CJP lll, Adachi said in the statement.

Inclusive of CJP lll, Japan's pool of private equity capital this year to-date was a mere $1 billion, according to the Hong Kong-based research firm. In 2013 and 2014, the respective fund pool was $4.8 billion and $2 billion.

Since establishing a Tokyo office in 2000 the private equity firm has invested $2.6 billion in more than 40 transactions in Japan as of June 30.

Additional reporting by Alison Tudor-Ackroyd

This article was updated on September 18 to add context

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