Japan has been the country of innovative trends for several years and this month we learn that their investment management sphere has set out new trends. We speak with Eriko Sakata from the world’s leading law firm Linklaters, who recently played key roles in two groundbreaking transactions: the launch of the SoftBank Vision Fund and JBIC’s Japan ASEAN Women Empowerment Fund. In this interview, Eriko reveals how the trends of Japanese investors have changed and how there is a new trend shaping the Japanese investment scene.
Could you share with us some new trends we are seeing in the Japanese investment scene?
Due to the tightening of regulations, traditional investors including banks and asset managers are increasingly facing challenges in the current investment climate. We are now seeing a slight shift in the market players, from regulated institutions to new market entrants including trading companies, shadow banking entities and corporates.
Can you provide an example of a recent transaction you advised on which reflects such trend?
A case in point was SoftBank Group Corp.’s launch of the USD 93.15 billion SoftBank Vision Fund, the world's largest ever private equity fund. This fund will focus on companies that will enable the next age of innovation including artificial intelligence, robotics, mobile applications and computing, communications infrastructure, cloud technologies and software, consumer internet businesses and financial technology. SoftBank is one of the world’s leading technology companies, and we advised on the fund structuring, terms and regulations and the establishment from scratch of a global regulated alternative investment business. As with other corporates, Softbank had not specialised in asset management business until the launch of this particular fund. Nevertheless, their business strategy was to expand into the M&A and capital investment sector, and due to their significant track record in regard to their historical M&A, many investors, such as the Arabic pension fund and other big corporations, agreed to invest. As this type of fund may be unprecedented and applicable investment techniques may also be unique, for making investment decisions, it is highly likely that investors are required to run thorough analyses given there is no track record of the target fund, the fund manager or a checklist to be commonly used for their investment decisions. Hence, this type of fund will demand deep insight and substantial experience in investment from investors.
Although these transactions are not common as yet, we envisage that we could potentially use this fund technique to apply to other new entrants into the Japanese fund management sector, such as trading companies and investment banks.
How are the traditional investors faring in the current regulatory environment?
We have been seeing professional investors exploring new sectors and investment methods. We recently advised Japan Bank for International Cooperation (JBIC) on its launch of the Japan ASEAN Women Empowerment Fund, which was a microfinance fund. This was one of JBIC's policy-driven investments, to contribute to the empowerment of women, and especially to the improvement of financial access for low-income women in ASEAN countries. This is the first microfinance fund investment by JBIC, which was quite different from normal private equity investment, so we advised not only on the terms and conditions of their fund, but also on the market trend of this unique sector.
Are there any other activities to watch amongst key players in the market?
It is noteworthy that Government Pension Investment Fund, Japan (GPIF) is changing their asset allocation, becoming more proactive in investing in alternative asset management sectors. GPIF made an announcement to change their asset allocation around three years ago, and since their first infrastructure fund investment in 2014, they are still working towards appropriate internal governance and regulations, which will help this alternative asset management sector to progress. Having said that, due to the size of GPIF's asset under management (AUM) – totalling to around 149 trillion yen (as at Q1 of financial year 2017) – they are very careful when selecting a certain sector so as not to control the market.
How long do you think this trend will last for and how will it shape Japan’s economy?
I think that this will last quite a while. Similarly to SoftBank, I expect to see more new entrants into the fund market with the aim of maximizing their investment opportunities, as a fund manager or as an investor. In order for optimum result of investment, traditional professional investors like GPIF and JBIC will continue to seek new arenas.
I think the up-rise of this type of fundraising will last a few years and enhance the investment sector, and we will take the lead in the new type of fund clients and methods. We are very keen to support our clients expand their business, via unique investment transactions.
Eriko Sakata
Partner
www.linklaters.com
Eriko has approximately 15 years' experience in the finance area and especially specialises in the areas of investment funds, infrastructure, real estate, securitisation and regulatory advice. She has advised numerous clients on transactions involving the structuring and establishment of funds and structured finance products. She is also experienced across a broad range of regulatory advisory work and has experience in the contentious regulatory space. She started her practice as a Japanese bengoshi in 2000, and worked in the Investment Management Group in Luxembourg for one year, and the Derivatives Structured Products Group and Investment Management Group in London for five and seven months respectively.
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