Founder-succession deals were the dominant theme when Advantage Partners was deploying its fifth Japan buyout fund, which closed in 2017. Fast forward two vintages and the picture has shifted. Fund VII comprises nine investments: four acquisitions from other financial sponsors, one take-private, one PIPE deal, and the rest split between corporate carve-outs and founder-succession.

“We see many opportunities in Japan’s middle market across every deal type, especially at the higher end of mid cap,” said Shinichiro Kita, a partner and head of Japan buyout at Advantage. “Last year, we made five investments from Fund VII with a total equity commitment of JPY 90bn (USD 557m). Co-investment from LPs took the total to JPY 150bn.”

There have been three announced investments in 2026 to date. TRA Holdings, an automotive components unit under THK, is the last deal from Fund VII. Meanwhile, a specialty chemicals business to be carved out from Lion for at least JPY 18.9bn could be the first from Fund VIII.

The fund closed at the hard cap of JPY 300bn at the end of May, after seven months in the market, having initially sought JPY 250bn. The final total includes a 4%-5% GP commitment.

Advantage will continue to pursue a wide range of deal sizes – equity cheques in Fund VII went from JPY 4bn to JPY 23bn – but the sweet spot is shifting upwards. Fund VII will focus on JPY 5bn to JPY 50bn, although it could deploy as much as JPY 60bn in a single transaction, according to Kita.

The firm divides its target market into two segments, based on enterprise value: JPY 10bn to JPY 30bn and JPY 30bn to JPY 100bn. Industry-wide, there were 23 and 18 transactions, respectively, last year. Compound annual growth in deal count since 2018 for the segments is 16% and 29%.

Asked about the deal pipeline, Kita observed that discussions are ongoing with more than 10 companies interested in having Advantage lead privatisations, although he conceded that robust public markets are pushing up prices. This filters through to the private markets as well. For example, founders might be more inclined to go public than sell a majority stake to private equity.

Sensible sizing

Advantage secured enough larger deals in Fund VII that LPs could engage in co-investment amounting to 50% of the fund corpus. This was significantly higher than Fund VI, but the scale up coincided with a rapid increase in fund size. Fund VII closed on JPY 130bn in 2023; the two vintages before that came in at JPY 85bn and JPY 60bn.

Advantage’s latest flagship is the largest ever raised by an independent local manager in the private equity space, and it may also have lain to rest some ghosts from the firm’s past. The previous high, when JPY 215bn was raised for Fund IV in 2007, soon became an existential low as Advantage ran into difficulty post-global financial crisis.

According to Kita, the how-much-is-too-much issue has been debated internally for years. To some extent, this fostered an innate conservatism as the firm raised too little capital and ended up fully deployed in a shorter-than-anticipated timeframe. Funds VI and VII were put to work in approximately just under three years apiece.

“Our conclusion was that the market environment and our organisational capabilities were totally different from Fund IV,” Kita said of the sizing decision.

“Back then, there weren’t enough deals at the upper end of mid cap, and our team was less experienced. Now, we see many good-size deals across all segments, from the lower end of mid cap to large cap. There are about 50 investment professionals in our Japan buyout team, and each of the seven partners has been with the firm since at least the global financial crisis period.”

Advantage has grown headcount at a rapid pace over the past decade. At the beginning of 2020, when Fund VI was raised, there were around 30 people. Recruitment and retention are not considered pressing concerns, despite numerous global managers expanding their Japan teams or looking for local high-fliers to build out coverage of the country.

“Interest in working for private equity has completely changed compared to 10 or 20 years ago. We receive more than 300 applications every year – mostly from candidates with experience in consulting or investment banking – and we hire three or four,” said Kita, adding that there’s a general preference for younger recruits who can be brought through the ranks.

Selling a stake

Another significant development over the past 12 months was the sale of a 5% GP stake, with the right to increase to 13%, to Australia-listed multi-affiliate manager Pinnacle Investment Management. At the same time, Tokyo Century Corporation, a local leasing business and longstanding Advantage LP that bought a 14.9% interest in 2019, boosted its holding to 33.3%.

The two investors serve different strategic purposes, according to Casey Kuester, a managing director for investor relations at Advantage. Tokyo Century is an aspiring direct investor that sources opportunities through its networks and co-invests in some of them. Pinnacle was seen as a distribution partner that could aid penetration of institutional and wholesale channels in Europe and North America.

“The founders were wary of traditional GP stake shareholders that might only care about getting bigger, about more FRE [fee-related earnings]. The culture is skewed towards making all stakeholders satisfied through outperformance, not just raising bigger and bigger funds,” he said.

Advantage mandated Goldman Sachs to run a process and listened to pitches from investors in and outside Japan, institutional and strategic. Pinnacle prevailed because it was considered best positioned to help address a list of priorities from diversifying the LP base to launching a real estate strategy.

Most of the participating LPs in Fund VIII were re-ups. The new additions typically made commitments not only to Advantage’s Japan buyout strategy but also to its Asia ex-Japan, private solutions – where PE-style value creation is applied to listed companies – and hydrogen energy funds. Some are returnees that stopped backing the firm after Fund IV because it went down in size.

“Previously, we didn’t have the scale or ability to welcome those global, large-scale sovereign-type of LPs, but this time a few came in. It’s a natural evolution,” said Kuester. “They want to write big tickets, and it means we can flex up if needed because we can go to a smaller group of LPs for co-investment.”