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ASIA NEWS: Expanding from Nippon

When you cross one of Japan’s largest private equity real estate firms with one of China’s largest private equity and hedge fund businesses, it is likely to make the headlines. This was the case when Secured Capital Japan (SCJ) told the Tokyo stock exchange last month that it had tendered an offer alongside Hong Kong-based Pacific Alliance Group (PAG) to delist the company ahead of a merger of the two businesses.

As a result, this month SCJ is expected to come under the umbrella of a holding company that will own a private equity business, a hedge fund business and, in SCJ, a real estate business. The other two businesses are those of China and Southeast Asia-focussed PAG.

Via a management buyout tender offer made on November 4 and backed by equity from the senior directors of PAG, SCJ and San Francisco-based buyout firm Blum Capital, the Tokyo-based firm is expected to become part of a business with a combined $6 billion in assets under management.

J-P Toppino, SCJ president and chief investment officer, explained the firm’s ‘thesis’ behind approving the merger. He said: “As a completely independent, long-only real estate group, we’ve realised its better to have access to a more diversified platform. When this is done, we’ll be that diversified platform with a pan-Asia real estate, private equity and hedge fund business.”

A successful tender for the 27 percent of company shares currently on the open market will see Toppino become the real estate head of a senior triumvirate at the newly merged business – PAG co-founder Chris Gradel becomes head of hedge funds, while Shan Weijin will lead the private equity effort.

Toppino will lead a vamped-up team, which will include the real estate component of PAG’s 140-person company, led in China by real estate head Patrick Boot. SCJ’s headcount currently is at 120 employees.

SCJ’s association with PAG started in March 2009, when PAG purchased $46 million in convertible bonds issued by SCJ. At the time, Gradel said it would ensure SCJ was “one of the few remaining well-capitalised real estate firms in Japan”. The investment and subsequent $525 million fundraising for its SCJREP IV vehicle meant SCJ could go on to make high-profile investments such as Pacific Century Place, an office tower in Tokyo that was in a distressed situation. It also is set to buy, through a consortium with other investors, Tokyo’s Ralph Lauren building, in what would be one of Japan’s largest retail real estate transactions this year.

SCJ also has had success over the past couple of years in its fundraising endeavors. After closing on $525 million for its SCJREP IV fund in August of last year, the firm has gone on to raise a further $250 million for a Japanese real estate debt vehicle following demand from the SCJREP IV fund’s investors base, which wanted greater exposure to debt than the 25 percent limit set in that fund.