Bahrain-based Investcorp and Saudi Arabia's sovereign wealth fund PIF are among the latest Gulf-based investors to expand their foothold in Japan
Bahrain-based Investcorp and Saudi Arabia's sovereign wealth fund PIF are among the latest Gulf-based investors to expand their foothold in Japan
Bahrain-based Investcorp inaugurated its first office in Tokyo on March 7, becoming the first major private capital firm from the Middle East to venture into Japan. Previously, the world's third-largest economy has only had one Israel-Japan venture capital firm, Corundum Open Innovation, with an office in Tokyo.
In a statement, Investcorp's Executive Chairman, Mohammed Alardhi, said its new Tokyo office aims to source 'direct private equity and real estate' deals in Japan, tapping 'new investment capital… from the GCC'.
As the largest alternative asset manager in the Middle East with $50bn in assets, Investcorp counts Abu Dhabi sovereign wealth fund (SWF) Mubadala as its biggest shareholder. The company joins a growing list of private equity and venture capital (PEVC) firms that have established their headquarters in Japan.
There are currently 596 domestic PEVC firms in Japan − more than double the number seen a decade ago (Fig. 1). The most pronounced surge occurred between 2017 and 2020, with between 42 and 45 new companies being established each year. Although the number of new firms has moderated to around 30, they still contribute to a growing segment in the country.
As for foreign asset managers, Japan’s financial regulatory body, the Financial Services Agency (FSA), created a Financial Market Entry Office in 2021 to facilitate the entry of foreign GPs into Japan. This initiative aims to assist them in their registration process and represents a significant step in helping them navigate regulatory procedures, including overcoming language barriers.
The weak yen and succession crisis draw Middle Eastern investors
Buoyed by the energy sector windfall, many Middle Eastern SWFs are sitting on a record pile of assets that are surpassing the needs of their domestic capital markets. As a result, their investment appetite for global alternatives allocations has grown. Preqin's analysis of SWF data shows that allocations to alternatives have doubled, up from 22% of total assets in 2021 to 44% last year, as they seek non-traditional assets to boost returns.
At the same time, a historic slide in the yen in 2022 has also made Japan’s assets more attractive. The country is also facing a succession crisis, prompting the need for business exits or strategic partnerships and contributing to the favorable conditions for PE dealmakers.
According to a forecast by Japan's Ministry of Economy, Trade and Industry, about half of 2.45 million business owners are expected to be aged over 70 in 2025, and are likely to need help finding successors. A study by Tokyo Shoko Research last year also showed that around 60% of the 170,000 Japanese companies surveyed had no succession plans in place.
Saudi Arabia’s investment ambitions
Investcorp’s interest in Japan follows the Saudi Arabian Public Investment Fund (PIF)'s recent inroads into the Japanese media industry in 2022. To build its name in the gaming world, PIF has since made investments worth billions of dollars in major players in the Japanese gaming and animation sectors.
The $620bn SWF has raised its stake in Nintendo twice this year, to 6.07% in January and 8.26% a month later. As a result, it’s become the largest foreign shareholder in Nintendo, overtaking Japan's own Government Pension Investment Fund. PIF made its first investment in the gaming giant in May 2022. Nintendo subsequently acquired animation studio Dynamo Pictures, which the SWF also invested in as an add-on deal.
In March 2023, PIF increased its ownership in Toei to 6.03% from 5%, less than a year after it first invested in the firm in April 2022. The Tokyo-based film and animation company is one of Japan's Big Four film studios. These deals build on PIF’s stakes in Japan-listed gaming companies Capcom and Nexon, which are worth over a billion dollars combined.
Elsewhere in the region, PIF backed Chinese e-sports firm VSPN in February through its gaming unit Savvy Games Group, in what is the largest e-sports venture financing in APAC since August 2020.
Saudi Arabia has been pursuing direct investments within private equity to diversify its oil-reliant economy. This is part of its Vision 2030 to focus on companies in sectors including automotive, entertainment, leisure and sports, financial services, technology, media, and telecoms.
Out of PIF's 29 known active direct buyout deals, 26 − or 90% − have been made since 2022. With public markets shrinking and IPO markets struggling, PIF significantly tweaked its investment strategy last year, moving away from venture deals to buyouts via direct and co-investments. This has resulted in a series of direct LP deals in Japan.
The entry of Investcorp into Japan may also herald the start of more investments from the wealthy Gulf region, as investors look for lucrative buyout opportunities amid a pervasive succession crisis.
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