AI Capital Plans New Fund of Private-Equity Funds Next Year

Dec. 2 (Bloomberg) -- Alternative Investment Capital Ltd., majority owned by Mitsubishi Corp., plans to start a new fund to invest in Asian private equity next year, as the industry emerges from a two-year slump triggered by a credit freeze.

The AIC Japan III Fund will be the company’s third of private-equity funds with focus on Asia investments, Kazushige Kobayashi, president and chief executive officer of the firm, said in an interview. The latest fund’s investments include Carlyle Group and Advantage Partners LLP, he said.

Tokyo-based Alternative Investment Capital, with $2.7 billion in assets, has committed $634 million through five funds investing in private equity since inception in 2002. The firm’s new fund plans to put money in about 15 to 20 funds gradually over about three years, and targets an internal rate of return of more than 20 percent, according to Kobayashi.

“In the private-equity world, 2009 has been the lost year in the wake of the financial crisis, but we’re starting to see the market normalizing as we see some bigger deals and buyers of debt are emerging,” Kobayashi said. “We expect that next year will be more normalized in the private-equity market.”

Kobayashi pointed to Goldman Sachs Group Inc.’s $3.28 billion commitment to finance TPG Inc. and the CPP Investment Board’s purchase of IMS Health Inc. for $5.2 billion as evidence of a recovery in the global buyout market. He also cited Boston- based Bain Capital LLC’s acquisition of Bellsystem24 Inc., Japan’s biggest telemarketing firm, from Citigroup Inc. for 120 billion yen.

Recovery Signs

Private-equity deals, in which managers use debt to finance acquisitions, evaporated as credit became more expensive and banks were reluctant to lend during the global financial crisis that deepened in 2008. Buyout groups bought a record $1.4 trillion of companies in 2006 and 2007, according to data compiled by Bloomberg.

Henry Kravis, co-founder of KKR & Co., and Stephen Schwarzman of Blackstone Group Inc., the world’s biggest private-equity company, both said in October that they’re poised to start buying again. Blackstone agreed Oct. 7 to buy brewer AB InBev’s amusement park unit for as much as $2.7 billion. KKR bought Oriental Brewery Co. earlier this year from AB InBev for $1.8 billion.

Private-equity investments in Asia have reached $25 billion since July, overtaking the $22.4 billion total for the first half, according to the Asian Venture Capital Journal.

‘A Waste’

Alternative Investment Capital’s new fund aims to raise more money than its second Asia-focused vehicle, which committed 18.8 billion yen, according to people familiar with the matter, who declined to be identified because information is not public.

Kobayashi declined to comment on the size of the fund.

“There are quite a few middle-market deals in Japan that are still unknown and it’s a waste not to tap that market,” Kobayashi, 48, said on Nov. 30. “In Asia, we’re seeing funds that are trying to capture the gross capital in countries such as China and India on the back of the economic growth and that’s an opportunity for us.”

In June, Carlyle said it raised $1.04 billion for its fourth Asian growth capital fund and will invest mainly in privately held companies in China and India as it bets domestic consumption will be fuelled by growing personal incomes and a recovery in the capital markets.

Opportunities for investments in Japan can be found at companies where aging managers have to find new successors, Kobayashi said. Japanese manufacturers trying to boost sales abroad, especially in China, can also be tapped, he said.

Alternative Investment Capital, also known as AI Capital, was established in October 2002 by Mitsubishi Corp., Japan’s biggest trading company, and Daido Life Insurance Co. It also provides discretionary investment management services and advisory services to clients.