Best of 2011: Private equity regroups after Japan quake

With Japan still reeling from the largest earthquake in its history, private equity business in the country has been put on pause.

 

We present some of PE Asia's most viewed articles of 2011. From March…

Few private equity professionals in Tokyo are focusing right now on the possible medium- to long-term impact of last Friday’s devastating earthquake and subsequent tsunami on the country’s private equity industry. 

“People are concentrating on the victims, whether the nuclear situation will be contained and how to recover from the scale of physical destruction,” says Hideaki Fukazawa, president and managing partner at Tokio Marine Capital.

People are concentrating on the victims, whether the nuclear situation will be contained and how to recover from the scale of physical destruction.

Hideaki Fukazawa

For Fukazawa, the most pressing business concerns in the last week have been to check on the safety of Tokio Marine Capital staff and their families – all of whom are fine – and those at portfolio companies. Answering the “many kind, warm and supportive emails” from worried LPs has been another priority task, he adds, stating his gratitude for the concern.

Though Tokyo, where the bulk of Japan’s private equity industry is concentrated, incurred very little physical damage in last Friday’s earthquake, business has been stalled by continued aftershocks and the rolling power cuts put in place to ease the country’s energy shortages – not to mention the fact that a mere 240 kilometers north of the city, the future of the stricken Fukushima nuclear power plant still hangs in the balance, casting the threat of nuclear contamination over the city, too.

Various plans of action have been quickly implemented by private equity professionals based in Tokyo following Friday’s magnitude 9 earthquake, one of the largest in recorded history. Subsequent nuclear power plant explosions, in addition to destruction from the earthquake and the tsunami that followed, have created safety concerns as well as infrastructure and logistical challenges for Japan-based professionals.

Tokyo: looking to
return to normal

The Blackstone Group closed its Tokyo office this week and will deliberate over the weekend whether to reopen on Monday. In the meantime it has offered to move the office’s 25 employees and their families to alternative destinations on a temporary basis, said a source with knowledge of the matter.

Swiss alternatives firm Partners Group has developed similar plans for its Tokyo office. Partners Group staff who prefer to stay in Japan are relocating to other provinces, while others will be temporarily relocated to the firm’s Singapore and Zug offices to work, said a spokesperson for the firm.

The Tokyo practice of law firm Clifford Chance will remain closed until next Tuesday. The firm’s Tokyo team will, however, continue to work with clients remotely, said a spokesperson for the firm, who added disruptions to the country’s power supply may result in some communication delays.

Meanwhile fellow law firm Freshfields Bruckhaus Deringer has resumed business at its Tokyo office. “Many of those who live close to the office have made it in to work and everybody is working steadily and determinedly to start getting the business situation in Japan back to close to normal as quickly as possible,” said a spokesperson.

The Japanese government is working to avert a catastrophic meltdown at the Fukushima nuclear plant 220 kilometres north of the capital Tokyo, according to reports from news service AP. Since Friday numerous powerful aftershocks have followed the earthquake.

“It was a huge earthquake. All the buildings were shaking from the ground,” said J-P Toppino, president and chief investment officer at Secured Capital Japan in an interview with sister site PERE, “but it’s very difficult to even find any broken glass.”

A few limited partners have called up not to ask about the status of their investment, but regarding the safety of our Tokyo staff

The city’s resilience to the quake has meant major credit providers in Tokyo will continue to operate “business as usual”, said the International Bankers Association in a statement, which represents some of the world’s largest banks including Goldman Sachs, Citigroup and Bank of America.

A number of firms PEI has spoken with said the disaster’s impact on their Asia portfolio has been minimal and that the main concerns at the moment were on the safety of those in Japan. “A few limited partners have called up not to ask about the status of their investment, but regarding the safety of our Tokyo staff,” said a spokesperson for a private equity firm who added no one in the group’s Tokyo office was harmed.

The Riverside Company, which has two portfolio companies based in Japan, said there was no direct damage to its businesses but that supply chain problems may persist for the next couple of months as the country’s infrastructure recovers.The firm’s staff will work from home until conditions improve over the following weeks, said a spokesperson for Riverside.

The US government is advising its citizens to evacuate areas within 80 kilometres of the damaged nuclear plant—48 kilometers more than Japan’s government is currently advising its citizens.

The UK government and other foreign bodies are advising citizens to evacuate Tokyo and anywhere north of the city.

Jenny Blinch contributed to this report.