Joint ventures are flavour of the month. The latest example came earlier this week when Ares and GE Capital announced their latest deal together, a €170 million unitranche package underwritten by the pair’s European Senior Secured Loan Programme. It was ESSLP’s fourth deal, and the JV’s first in France. GE and Ares have already deployed more than €500 million of its total €1.75 billion war chest over the last 12 months.
The combination of Ares’ asset management and GE’s credit expertise is a potent one, and one which appears to be bearing fruit. Pooling origination capabilities opens up a much broader suite of potential deals, and the logistical burden when it comes to due diligence and execution can be shared. It’s a logic that other players recognise also: earlier this month Avenue Capital Group and JZ Capital Partners launched a €400 million JV focused on the Spanish mid-market, Toro Finance.
And no sooner had Ares and GE announced their latest deal together, than London-headquartered ICG announced plans for a Japan-focused JV with investment bank Nomura. The initiative, which will be focused on a mezz fund seeded with ¥10 billion ($100 million) from each party, will invest in mezzanine deals in Japan.
For ICG, the agreement makes sense. Having closed down its Tokyo office during the downturn, the firm now has an instant line into the Japanese market from one of its leading banks. ICG chief executive Christophe Evain acknowledged as much in a statement: “Nomura’s depth of market coverage and relationships, combined with ICG’s specialist knowledge of credit fund structuring, investing and managing united with our joint distribution expertise should contribute significantly to the institutional credit investing landscape in Japan.”
Another source said the deal gives ICG, which tried unsuccessfully to penetrate the Japanese market in 2006-2007, access to dealflow and relationships with local investors – it’s the world’s second largest pension fund market, so there’s plenty of capital available.
The deal should work well for Nomura too – they can tap into ICG’s specialist mezzanine fund structuring and management expertise, risk analysis capabilities, and also its considerable global fundraising apparatus. Mezzanine investing isn’t new in Japan, but it’s typically done from banks’ balance sheets rather than via a fund structure. ICG brings that additional know-how.
Interestingly, the deal came about because of an ICG executive who moved to Nomura when the mezzanine firm shut down in Japan. Tomohiro Kikuta approached ICG and suggested the bank might be willing to pursue a mezzanine-focused tie-up, and the wheels were set in motion. Kikuta is now back in the ICG fold, based in the firm’s recently-opened Tokyo office.
The name of the game for joint ventures, it seems, is access. The formation of joint ventures allows firms in need of capital deployment to partner with those who have boots on the ground in a particular geography or region, but possibly lack the size or heft to work on the deals in their pipeline. As private debt opportunities begin to expand outward beyond the traditional playgrounds of the US and Western Europe, we’d expect more of these ventures to sprout up in the coming years.
And as part of this trend, don’t be surprised if Japan emerges as one of the busiest private debt playgrounds of all. ICG are by no means the only Western manager to fancy its chances in this seemingly forever-stagnant country. AXA’s real estate group has just raised ¥26 billion (€192 million; $259 million) for its second real estate debt fund targeting Japan. Its first, a 2011 vintage vehicle, is fully invested.
Japan, still the world’s third-largest economy, is “on the way to recovery at a moderate pace”, according to the Japanese Cabinet Office’s latest monthly report. Exports are up and exceeding estimates, thanks largely to the recovering markets in Europe and the US. It has the fastest-growing economy in the developed world this year. But it also has the worst sovereign debt burden of the world’s industrial nations, with a trade deficit of ¥1.1 trillion. Against that backdrop, the latest slew of private debt funds are but a drop in the Pacific Ocean.