Advantage ventures into public market

Leading Japanese private equity group Advantage Partners is making a $2 billion foray into hedge fund management.

Advantage Partners, a Japan-focused buyout firm formed by former Bain consultants, is looking to raise a $2 billion fund to “make influential minority investments” in listed Japanese companies, according to investors in private equity funds advised by the firm. The new fund is named “Advantage Partners Inflexion Initiative,” according to a note PEI Asia received from a third party.

In the memo, Advantage said 15 years of building local expertise and networks have enabled the team to “see tremendous deal flow, particularly with respect to public securities, but we have had to pass on these opportunities due to our buyout fund and this has limited our ability to capitalise on this attractive segment of the market”.

“Therefore, after conducting extensive research and receiving many inbound requests from our limited partners, we have decided to formally invest in public securities through the establishment of new funds, with a dedicated team of investment professionals tailored to the investment strategy,” the note said.

One investor said the firm was planning to establish a 10-person team for the new fund strategy. Akira Iwamoto, who has been part of the Advantage buyout team, will be part of the new effort.

Commenting on the new strategy, the investor said he would prefer to focus on their original buyout business but was sympathetic towards the motivation behind the firm's move into the listed equity market: “The environment in Japan is becoming tougher for pure private equity plays,” he said.

However, the private equity fund manager, which is led by representative partners Taisuke Sasanuma and Richard Folsom, feels it has a competitive advantage in the listed market. “None of the traditional buyout funds, hedge funds, or mutual funds can fully capitalise on these opportunities. We will be a first mover in this segment in Japan, as we were in the buyout space,” it said in the note to LPs.

Advantage Partners, often referred to as one of the “big three” independent private equity firms in Japan, raised $1.9 billion for a fourth buyout fund earlier this year. The fund has agreed to invest in Tokyo Star Bank, but according to another investor has been struggling to complete the transaction, reportedly worth more than $2.5 billion, in part because of the ongoing credit crunch.