Daiwa Securities plans $4.5bn private equity fund

The second largest securities brokerage in Japan is putting plans in place to expand its real estate business and launch a private equity fund, according to media reports.

Daiwa Securities Group has revealed intentions to launch a ¥500 billion (€3 billion; $4.5 billion) private equity fund, chief executive Shigeharu Suzuki has told Reuters.

He said the geographical footprint of the fund had not been defined, but that it would invest up to ¥100 billion per deal.

Daiwa already has a fund investing the group’s own cash, Daiwa Securities SMBC Principal Investments, which is a joint venture between Daiwa Securities and Sumito Mitsui Financial Group. It has put ¥436 billion to work in private equity, real estate and debt investments.

The new fund will operate separately and raise commitments from other investors. It is likely to be formed in three to four years time.

“This market will definitely grow bigger. There will always be trade in assets,” said Suzuki. “Who will profit most from this? That would be those making the investments, rather than the investment banks advising on the deals.”

Suzuki also said Daiwa wants to expand its real estate business to stabilize its revenue sources. It is considering buying more than a 50 percent stake in Pacific Holdings, an operator of two real estate trusts.

“We need to change our business model, which depends on stock and bonds,” he said.

Historically Daiwa Securities Group has participated in deals alongside Daiwa Securities SMBC Principal Investments.

In June, the two parties invested $100 million in Hopu USD Master Fund I, a China-focused fund concentrating on opportunities arising from the restructuring of state-owned enterprises.

Private equity is becoming an increasingly palatable allocation for Japanese institutional investors.

Earlier this year, Daido Life Insurance, a $58 billion (€38 billion) publicly traded Japanese insurance company, increased its commitments to private equity and hedge funds by roughly $500 million for the fiscal year.