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New laws could damage Japanese private equity

Japan's financial regulators are to step up their scrutiny of private equity funds under a new law to impose transparency in the booming sector. But industry professionals in the region are concerned that this could hamper growth just as the market is gathering momentum.

Japan's lawmakers argue that increased regulation will, in fact, increase interest in private equity investment. Advocates of the law say that it could prod risk-averse investors such as cash-rich public pension funds into private equity investment by making it more transparent.

'Right now there are not so many participants in terms of investors in private equity,' Toshiyuki Kumura, general manager of Tokio Marine Asset Management's private equity group told Reuters. 'If the industry is more regulated, many more will consider investment.'

Whatever the outcome, the law is being implemented at a time when Japan's buy-out market is beginning to flourish due to increased willingness by companies to sell healthy subsidiaries and mounting pressure for firms to boost shareholder value. Buy-outs rose six fold to over Y500bn last year from Y100bn in 2002.

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