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3i pulls back from Japan, citing a lack of deal flow

Lack of management buy-out opportunities was cited as the reason UK-based private equity firm 3i has decided to close its Tokyo office, according to media reports.

Few companies are prepared to spin off non-core businesses, Mark Thornton, head of 3i's operations in Tokyo, told the Financial Times. ‘We thought the restructuring of the Japanese economy would give rise to a large number of MBOs, but the reality is that we've only been able to complete one since we set up in 1999,' he admitted.

Japan's economy has been severely in crisis since the end of the 1980s, and returns from private equity funds have decreased over the last ten years. One-year performances for the end of March 2002 were just over ten per cent, but this dropped to 7.7 per cent for a three-year horizon, 5.7 per cent for a seven-year horizon and 5.5 per cent for a ten-year horizon.

There has been some activity in the Japanese private equity industry, notably Nomura's Y10bn venture fund that was established in October 2002, but the economic outlook is showing no signs of improvement.

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