Carlyle Group raises $2.8 billion in largest Japan-focused buyout fund

By Kane Wu

HONG KONG (Reuters) -U.S. investment giant Carlyle group said on Tuesday it had raised 430 billion yen ($2.8 billion) for its fifth Japan buyout fund, its largest investment vehicle for Japan.

Strong demand and backing from domestic and global investors helped it raise nearly 70% more than its previous fund, Carlyle said in a statement.

Carlyle started fundraising less than a year ago and the final size exceeded the planned ceiling of 400 billion yen taking into account commitments from the firm and its affiliates, said Kazuhiro Yamada, co-head of Carlyle Japan.

Financing for Japanese leveraged buyouts is attractive and there are plenty of opportunities involving companies undergoing management succession, looking to sell non-core businesses, or open to being taken private, he said.

"400 billion is a large number but it’s not too big based on the current demand we see in the market," Yamada said.

The new fund will target deals with equity investments typically between 20 billion to 50 billion yen but will also selectively do larger buyouts, he said.

The completion of Carlyle's Japan fund signifies increased interest in Japan from global investors, as a cheap yen, buoyant public market and policy drives to improve corporate governance make stocks and assets in Japan more attractive.

Japan's Nikkei share average logged the biggest rise ever on an absolute basis for the year ended March 29 after hitting record levels since February. It's up 16% this year.

Private equity-backed mergers and acquisitions in Japan totalled a record $35.5 billion in 2023, and had risen steadily in number in the preceding decade, LSEG data showed.

Carlyle currently has about 30 deals in its Japan pipeline and plans to add nine more staff to its current 25-strong local team to keep up with the new fund cycle, Yamada said.

About 70% of the investors in Carlyle's new Japan fund are non-Japanese, he said, compared with 60% in the previous fund.

Carlyle's Japan buyout platform has invested more than 450 billion yen across about 40 private equity investments since 2000, the statement said.

The firm raised 258 billion yen for its fourth buyout fund in 2020. It has 12 investments to date, the statement said.

That fund delivered a 28% net internal rate of return as of end-March, one of its best performing vehicles, Carlyle's first quarter earnings report showed.

Carlyle on Monday launched a tender offer for fast food operator KFC Holdings Japan in a deal worth 135 billion yen ($863 million).

The investment group is selling Japanese cosmetics supplier Tokiwa Corp in a deal that could value the company at $800 million, Reuters reported in March.

Carlyle's Japanese portfolio also includes advertising firm Kanamel, beer brand Orion Breweries and Rigaku Group, which manufactures X-ray and thermal analysis and non-destructive testing instruments, the investment group's website shows.

The group said it would continue its strategy of investing primarily in upper middle-market opportunities in Japan across technology, media and telecom, consumer, retail and healthcare, and general industries.

Carlyle is separately raising a pan-Asia private equity fund. Reuters has reported that it lowered its target to $6 billion and aimed to close the fundraising in the third quarter this year.

(Reporting by Kane Wu; Editing by Bernadette Baum and Mark Potter)