Japan’s Integral Plans to Start Second Fund as Equities Surge

Integral Corp., the Japanese private equity firm established in 2007 that has invested in listed companies, plans to raise 30 billion yen ($301 million) for a second fund by the end of August as equities surge.

The firm has already received about 11 billion yen from at least one national bank, several regional lenders and pension funds, Nobuo Sayama, a partner and representative director at Integral, said in an interview on April 9. It will invest in seven to 10 companies over the next five years, Sayama said, without giving further details.

Prime Minister Shinzo Abe’s plan to revive the world’s third-largest economy has helped push Japanese stocks to levels unseen since before the collapse of Lehman Brothers Holdings Inc. in September 2008. Integral’s first fund started that month and made investments in six companies, including buying TYO Inc. shares in December 2010 at 49 yen, according to Sayama. The advertisement company’s stock closed at 131 yen yesterday.

“The market environment has recovered from the wounds inflicted by Lehman,” Sayama said. Integral is positioning itself as a “Japanese-style private equity fund,” emphasizing long-term commitment and support for companies, Sayama said.

The manager raised 11.2 billion yen for its first fund and also invested in BPS Co., a privately-held manufacturing company that provided an estimated annual internal rate of return of

30.4 percent, according to Sayama.

Negative Image

“Very little of Japanese corporate pensions is invested in private equity funds, so capturing even two or three percent of that total would amount to a considerable sum,” said Kazuya Kabayama, a senior researcher at the Tokyo-based Research Institute for Policies on Pension & Aging. The stock rally may boost the track record of private equity funds, helping soften their negative image in the country and encourage investment, Kabayama said.

While the awareness of funds such as Integral’s has increased in Japan in the past ten years, it “is still short of our expectations and far below that seen in the U.S.,” Sayama said.

Sayama helped set up Unison Capital Inc. in 1998, an investment firm involved in the turn-around of Japanese confectionery maker Tohato Inc. He was a founder of GCA Savvian Group Corp. in 2004, which advised Daikin Industries Ltd.’s acquisition of Goodman Global Inc. Sayama stepped down as a board member of GCA on March 27 to become its honorary adviser and to focus on Integral.

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