Panel: Japan’s LPs require tailored pitch

Japanese institutional investors are interested in investing in offshore private equity, but foreign funds pitching them sometimes don’t take the time to minimize misunderstandings, delegates heard during a panel discussion at PEI’s Global Alternative Investment Forum in Tokyo.

The issue is of growing importance to Western fund managers, who have been expanding their geographical footprint in the search for commitments. 

The panel offered advice based on their experiences working with both Western fund managers and Japanese investors. 

Yuka Hata, director of investment & research at Nomura Private Equity Capital, said on a very basic level, foreign investors often assume that the English speaking and listening capabilities of Japanese investors are high, which isn’t always the case. She suggested not only speaking slow in clear English but afterward drawing out questions rather than waiting for them. 

“Japanese investors can be quite shy about asking questions,” Hara said. “You are the one in a position to ask how they feel about the presentation. Initiate communication rather than wait for questions.”

Japanese also pay careful attention to detail and they appreciate paper documentation that is extremely accurate. If the documentation has any incorrect numbers, it will quickly make a bad impression, she said.

Answer questions in a straightforward way, added Joji Takeuchi, co-founder and chief executive officer of Brightrust PE Japan.

“In some cases some foreign GPs may finesse what they say and that can lead to misunderstandings,” Takeuchi said. Likewise, when performance is not good, explain it to the investor before they ask you about it. “After the Lehman crisis, there were some situations that foreign GPs did not fully explain to gatekeepers or investors.”

Takeuchi said that the potential Japanese investor may come forward with what a foreign GP may see as an onerous or frivolous request, or even as asking too much. It is critical to accept and carry out the request.

“If an investor asks for some numbers to be ready overnight, there is a reason for him to do so. Probably his management is asking for it. If you help them out, you build the relationship. If you neglect them it becomes a very uncomfortable situation.”

Hata agreed: “In a pension fund, people on the investment side need to report to the finance department of their parent companies, and the people in finance may not have private equity knowledge, so it will lead to more questions and the investment people must have a 100 percent good answer. That’s why Japanese investors give you a lot of detailed questions. They make sure they’re well-prepared when they are questioned. “

The panel emphasized relationship building, which includes initiating social activities without a business agenda, rather than delivering a pitch and suggesting further contact by email. Relationship building may be perceived by some foreign managers as wasting time, but it is key to gaining the confidence of the Japanese.

Some Japanese investors are said to take a longer time than what is considered average to do due diligence. That perception may be due to the institutional structures in Japan, which are different than what a Western GP is used to, said Riki Kojima, general manager of the merchant banking department at Mitsubishi.

“The corporate pension fund individual that a GP pitches to has to go back to the boss and report what was discussed and what his assessment is. The final decision, though, will be made by a boss or a committee.” A GP, therefore, should understand the decision making process may be slow, said Kojima. 

Takeuchi added that the internal approval process at financial institutions such as insurance companies tends to take long. “You have to factor that in, accept it,” he said. “But once the Japanese decide, they move very quickly and they stick with you.”