Cap­i­tal Struc­ture

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Pri­vate eq­uity in­vest­ment has been a main­stay of the Amer­i­can econ­omy since the end of World War II. The junkbond boom of the 1980s and the dot-com bub­ble of the late 1990s fu­elled an in­dus­try that is of­ten char­ac­terised by the me­dia as ruth­less and preda­tory. Amer­i­can PE firms are well cap­i­talised and reg­u­larly ex­e­cute trans­ac­tions in the tens of bil­lions of dol­lars. The PE in­dus­try in Ja­pan, in con­trast, is still in its in­fancy. Its first ded­i­cated fund was formed in 1997.

To­day, in­dus­try ac­tiv­ity con­tin­ues to trail be­hind that found in other economies in terms of trans­ac­tion size, vol­ume and fundrais­ing bench­marks. Ac­cord­ing to an ar­ti­cle writ­ten by Kosaku Nar­ioka, pub­lished in the The WSJ on Novem­ber 10, 2014, Ja­pan has raised only ¥630 bil­lion ($5.3 bil­lion), or 1% of the world’s to­tal PE mar­ket, de­spite be­ing the world’s third-largest econ­omy. This low level of in­vest­ment ac­tiv­ity is rooted in man­agers’ un­will­ing­ness to ex­e­cute merg­ers and ac­qui­si­tions due to a risk-averse cul­ture and neg­a­tive per­cep­tions of PE. How­ever, re­cent de­mo­graphic shifts and in­ter­na­tional com­pe­ti­tion are forc­ing man­agers to re­con­sider their strate­gies, open­ing the door for in­fu­sions of pri­vate eq­uity cap­i­tal and man­age­ment ex­per­tise. Cul­tur­ally, the Ja­panese iden­tify money as spir­i­tu­ally un­clean, a pre­cept that orig­i­nates from the Edo pe­riod from 1603 to 1868.

From: A Na­tion Apart: The De­vel­op­ment of Pri­vate Eq­uity in Ja­pan

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