Eye-popping returns lure hedge funds to neglected Japanese startups
Written by tokyoclub on June 29, 2021
Hedge funds and asset managers are increasingly turning to Japanese startups, attracted by some eye-popping past returns in the long-overlooked sector.
Asian hedge fund firms including Pleiad Investment Advisors and global investment giants like T. Rowe Price Group Inc. and Baillie Gifford are providing late-stage growth capital to the nation’s most promising ventures, according to fund managers at the companies.
They’re emboldened by surging share prices of startups that went public in recent years, along with renewed government efforts to promote digitalization and entrepreneurship. With just six unicorns, the world’s third-largest economy has struggled to produce new companies that have global ambitions like Alibaba Group Holding Ltd. and Tesla Inc.
“There was a real lack of institutional investors that were focused on late-stage, pre-IPO opportunities,” said Michael Yoshino, formerly of Soros Fund Management and TPG Capital, who is Pleiad’s co-chief investment officer. “More foreign investors are starting to look into Japan and look at this space. That’s because the competition is less intense, and therefore valuations are more compelling.”
Hong Kong-based Pleiad, which oversees $3 billion, last year started a private equity arm headed by two former bankers at Wall Street firms. Known as Minerva Growth Partners, its mission is to help Japanese startups reach a scale that can draw money from global institutions.
Minerva has so far raised ¥15 billion ($135 million) for its maiden fund and plans to back at least eight companies over two years, said Yoshino.
T. Rowe Price has invested in more than three such deals, starting with a 2018 private financing round for cloud accounting and human resources software provider Freee K.K., said Archibald Ciganer, Japan equity strategy fund manager who oversees $6 billion at the U.S. firm. It plans to make one or two private investments in Japan each year.