Moogwi Kim of Unison Capital, Inc., a fund manager at the marcus evans Private Wealth Management APAC Summit 2014, on Japanese private equity investing.
LONDON, Oct 23, 2014 - (ACN Newswire) - "Japanese private equity (PE) provides private wealth portfolio managers with attractive risk-adjusted returns and an effective asset diversification opportunity," says Moogwi Kim, Director, Unison Capital, Inc. Although a number of international PE shops have exited the Japanese market after several years of unsuccessful operation, PE has proven to be less volatile, outperforming traditional asset classes, Kim points out.
Unison Capital, Inc. is a fund manager at the marcus evans Private Wealth Management APAC Summit 2014, in Kuala Lumpur, Malaysia, 27 - 29 October.
- What value can Japanese PE add to a private wealth portfolio?
Given the extremely strong performance of public equity, the stock market is facing a possible adjustment period and fixed income an expected rise in interest rate. By contrast, PE is less volatile, and top quartile buyout funds have consistently outperformed traditional asset classes. Compared to emerging markets, Japan provides limited downside risk thanks to its well-developed infrastructure and stable economy, which finally got out of the long deflation.
- Which industries or sectors do your funds focus on? Why?
Japan is often considered a sleepy economy with limited GDP growth, but if you pick the right sector and company, you will wake up to see tremendous growth. For example, Japan is the most rapidly aging economy, which provides a lot of room for growth in sectors such as pharmaceuticals. Due to changing demographics, fragmented sectors, such as restaurants, also present great consolidation opportunities. Exporters, particularly some machinery part makers, also take advantage of Asia's growth. These sectors have a strong track record.
- How should investors access these opportunities?
Finding the right local partner is a must. To access good deals in Japan, it is important to be connected with a wide range of commercial banks, intermediaries, and the corporate community, which takes decades of local experience. Consistency of the team and strategy are also key. Many buyout firms experienced team turnover or drastic changes in fund size/investment strategy.
- What are some of the complexities of Japanese PE investing?
Japan is a difficult market to access, due to language and cultural barriers, and the relationship-driven business culture. Cost of capital is cheap, thus corporate owners generally do not need expensive PE capital. To generate a deal, it takes long years of relationship building with the sellers. After investing, PE managers often have to change not only the top management team but also middle management members, to effectively enhance the corporate governance. Access to management talent pool also takes the firm's sterling reputation in the local market.
Identifying a good company is easy, but identifying good investment opportunities is not. We identify undermanaged companies that often lack sound strategy, sufficient resources, and managerial talents that can be strengthened by partnering with us.
- What advice do you have on risk mitigation?
Price discipline is second to none. In Japan, if you buy a company with stable free cash flow within 8X EBITDA, you will not lose the game, since leverage is cheap and abundant. However, such deals tend to attract a number of bidders, resulting in excessive entry valuation. My advice is to go with a PE firm that always loses in such a price competition. You do not want to invest with a partner who always wins the auction with a double digit entry multiple.
Secondly, for downside risk management, your partner needs to be well connected with banks and experienced in dealing with lenders. When the portfolio is facing a downturn, resetting covenant and bank negotiation defines the outcome of the deal.
About the Private Wealth Management APAC Summit 2014
The fifth annual Private Wealth Management APAC Summit is the premium forum bringing elite buyers and sellers together. The Summit offers regional SFOs, MFOs, wealth advisors, and international fund managers and consultants an intimate environment for a focused discussion of key new drivers shaping wealth preservation and investment strategy. Taking place at the Hilton Kuala Lumpur Hotel, Kuala Lumpur, Malaysia, 27 - 29 October 2014, the Summit includes presentations on strategic asset allocation and risk management, co-investment opportunities, family governance, lucrative alternatives to boost returns and more.
For more information please send an email to info@marcusevanscy.com or visit the event website at www.pwmsummit.com/MoogwiKimInterview
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About Unison Capital, Inc.
A pioneer in the private equity market in Japan, Unison Capital, Inc. was established in 1998 to help portfolio companies grow and generate superb return to investors. Fund I was established in 1999 with a total of 38 billion yen. Fund II was established in 2004 and, including co-investment funds, with a total of 114 billion yen. Fund III was established in 2009 and, including co-investment funds, with a total of 107 billion yen. To date, these funds have invested in 21 portfolio companies worth a total enterprise value of 600 billion yen, with 12 full exits. www.unisoncap.com.
About marcus evans Summits
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