Japan’s Orix to launch buyout fund in asset management pivot, CEO says

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TOKYO — Japanese finance group Orix will expand its asset management business with a private equity fund, seeing limited earnings growth ahead for its leasing and banking segments even with interest rates expected to go up.

“If interest rates rise only 1 percentage point or so, it’s hard to expect high returns,” President and CEO Makoto Inoue told Nikkei.

The company plans to launch a buyout fund in 2024, raising around $1 billion to $2 billion from investors, with Orix contributing as well.

“We’ve had people say they want to put their money with Orix in recognition of our investment performance,” Inoue said.

Orix has self-funded investments in the past. It has provided capital and business support to target companies to raise their value and before listing them on the stock market or selling them to another buyer.

In March 2022, Orix sold accounting software developer Yayoi to U.S. private equity firm KKR for roughly triple what it had paid in 2014. Orix acquired Japanese cosmetics and health food company DHC for around 300 billion yen ($2 billion at current rates) in 2023 and said the same year that it would put a total of around 200 billion yen into Toshiba in a combination of equity investment and mezzanine financing.

But self-funded investments add to Orix’s risk assets and could hurt its credit rating. By creating a buyout fund that taps outside money, it will be able to acquire companies without adding to its own assets.

Fees from managing the fund could also become a stable source of income.

Orix’s asset management business includes real estate investment trusts in Japan and Dutch asset manager Robeco, which was acquired in 2013.

The group’s domestic and overseas assets under management totaled 60 trillion yen as of the end of September.

“In the future, we want to grow our assets under management to around 200 trillion yen, on par with world-leading managers in the U.S. and Europe,” Inoue said.

Expectations are high that the Bank of Japan will end its negative interest rate policy in 2024. If interest rates rise, the yen is expected to appreciate.

“We are all for a strong yen,” Inoue said. “It will make it easier to invest overseas.”

He emphasized that with overseas accounting for more than 30% of its operating assets, the group’s future growth will be found abroad.

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