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No. 366, March 2000

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American Companies in Japan


Every month, the managers of more U.S. venture capital funds decide that money can be made in Japan. Among the latest believers is SUN MICROSYSTEMS, INC. Its subsidiary will draw on the $200 million investment fund that the major computer supplier set up in October 1999 to invest in 20 or so Japanese start-ups by the end of 2000. The goal of the fund is to promote innovation by companies developing products, markets and services based on Sun's technology and platforms. These firms most likely will be Internet-related. Sun is interested only in minority investment opportunities in entrepreneurial ventures.

Another convert is ANDERSEN CONSULTING LLP. It is drawing on money from two sources. One is a roughly $917.4 million private equity fund for investors interested in early-stage Internet-related businesses. About 10 percent of the fund will be earmarked for Japanese ventures. Like other start-ups identified for financing, the recipients also will receive managerial and other advice from Andersen Consulting's Tokyo office. The big business consulting company also plans to extend $1.2 billion in financial assistance over three years to later-stage Internet firms around the world to help them expand their business or go public. Again, some 10 percent of the money will be invested in Japan. Andersen Consulting's aim here is to win new clients for its services.

GENERAL ELECTRIC CO. certainly does not need to be sold on the potential gains from investing in Japan since it already owns an array of domestic financial services providers through its GE CAPITAL CORP. Now, however, it is pursuing returns in a new area: Japanese Internet start-ups. The $50 million E- Fund has been established for this purpose. Managers are looking in particular for companies providing the infrastructure for on-line securities trading and e-commerce or other types of Internet systems. An additional target is companies that run computer systems for other businesses.

On the heels of this announcement, GE CAPITAL CORP. agreed with DAIWA SECURITIES SB CAPITAL MARKETS CO., LTD. and SUMITOMO CORP. to establish a private equity fund (see Japan-U.S. Business Report No. 363, December 1999, p. 20). The partners initially will capitalize it at $183.5 million, although they hope to raise an additional $733.9 million from institutional and other investors. Many of the details still need to be worked out, but the fund, which could be set up as soon as April, will invest mainly in unlisted companies and in operating divisions spun off from major companies.

Individual investors now have a free on-line source of timely information on initial public offerings of stock by Japanese companies. The service, called Tokyo IPO, is provided by BARGAIN AMERICA CORP. It covers IPOs on all of Japan's securities exchanges in both English and Japanese. Weekly commentaries on the local IPO market also are available at Tokyo IPO's Web site as well as by e-mail. San Jose, California- based Bargain America got its start in Japan by selling over the Internet brand-name American products at U.S. prices. That still is the firm's main business, but it also publishes 11 e-mail newsletters in Japanese on a variety of subjects.

The first on-line debt trading system in Japan could debut by December of this year. It will be backed by a joint venture between EREORG.COM, INC. and MI-TSUBISHI CORP. The ereorg.com system enables institutional investors to buy and sell debt in the secondary market in an anonymous and secure environment. Analysts long have argued that the absence of a robust secondary debt market in Japan is one reason that it is taking domestic banks and other financial institutions so long to dispose of their mountain of nonperforming loans. The New York City firm's system should accelerate this process by creating a more active and more liquid market. Transaction times and settlement costs also should be reduced through the use of standardized contracts and other documents. In connection with the formation of the joint venture, MC CAPITAL INC., the New York City merchant banking arm of Mitsubishi, invested an undisclosed amount in ereorg.com.

BANK OF NEW YORK CO. plans to start operating in June the first Internet-based foreign exchange trading system in Japan. iFX Manager, which already is available in the United States and the United Kingdom, handles all phases of the foreign exchange process for institutional investors. Clients can manage transactions in multiple currencies and also can hedge deals through currency futures. Bank of New York will set up a round-the-clock system linking its Tokyo branch, where local customers will place orders, to offices in New York and London. In time, other banks will be allowed to use iFX Manager.

In its latest move to gain clients for its on-line brokerage services (see Japan-U.S. Business Report No. 363, December 1999, p. 21), DLJDIRECT SFG SECURITIES INC. opened a customer service center in central Tokyo. It is the first Internet stock trader to have a brick-and-mortar presence. Customer service representatives will brief people about on-line trading, including how to operate a PC. Interested investors also will be able to open brokerage accounts. .....DLJDIRECT SFG SECURITIES INC. customers soon will have access to a new high-return/high-risk product from GOLDMAN, SACHS & CO. The investment vehicle, which represents the securitization of options on some 50 Japanese stocks, is the first of a number of products for individual investors that the big investment bank plans to offer through on- line brokerage companies.

Now entering its second year of operations, NIKKO SALOMON SMITH BARNEY LTD. is thinking expansion. The investment banking and securities trading venture between CITIGROUP INC. and NIKKO SECURITIES CO., LTD. (see Japan-U.S. Business Report No. 354, March 1999, p. 19) plans to add 100 or so people this year to its 1,200-employee payroll to strengthen its position in both investment banking and product development. The company is especially interested in hiring more analysts to broaden its coverage of publicly traded stocks.

All of the formalities have been completed for the first foreign takeover of a big-name Japanese bank. At the start of March, LONG-TERM CREDIT BANK OF JAPAN, LTD. will emerge from bankruptcy under the ownership of NEW LTCB PARTNERS C.V., an international consortium formed by RIPPLEWOOD HOLDINGS LLC (see Japan-U.S. Business Report No. 364, January 2000, p. 17). The investor group will pay $9.2 million to acquire about 2.4 billion existing LTCB common shares and will funnel another $1.1 billion into the bank's reserves through the purchase of 300 million new common shares. For its part, the government will inject $2.2 billion into LTCB on top of the $33 billion of taxpayers' money it already has spent to rid the investment bank's books of bad loans. The deal took longer to finalize than first anticipated because of disagreements between the buyers and the government over the handling of the presumably sound loans still on LTCB's books and over New LTCB Partners' treatment of existing borrowers. The consortium, which includes such financial-industry powerhouses as GE CAPITAL CORP., believes that the New LTCB, as the bank temporarily will be known, can achieve a net operating profit of $458.7 million within two years of its launch.

PRUDENTIAL INSURANCE CO. OF AMERICA has taken over the half interest of MITSUI TRUST & BANKING CO., LTD. in PRUDENTIAL-MITSUI TRUST INVESTMENTS CO., LTD. In operation since October 1998, the joint venture was formed to manage and sell investment trust products (Japanese-style mutual funds). Neither company was specific about why they had parted ways, saying only that the relationship had served the purposes of both. For Prudential, that meant getting started in Japan's relatively undeveloped investment trust market. As of yearend 1999, Prudential-Mitsui Trust Investments ranked 16th among 32 foreign-affiliated investment trust companies with $733.9 million in assets under management. It had launched eight new products and developed ties with a number of distributors. For Mitsui Trust, the joint venture came at a time when its finances were weak. They now have improved, and the bank is set to merge with CHUO TRUST & BANKING CO., LTD. Prudential executives say that the company will continue to expand its investment trust product line, including beginning several aggressive new funds in the near term, as well as its distribution system.

AMERICAN INTERNATIONAL GROUP, INC., the top U.S. writer of insurance policies for companies, will help YASUDA MUTUAL LIFE INSURANCE CO. prepare for the introduction of defined contribution pension plans in Japan, now set for the early part of 2001. These will be similar to America's 401(k) pension plans. Interestingly, Yasuda Mutual Life expects to get some experience under its belt in the 401(k)-type pension plan market by first selling pension fund products designed by an AIG subsidiary to Japanese businesses in Hong Kong. That part of the relationship will be activated in December of this year. Later on, AIG and Yasuda Life will extend their alliance to the Japanese market.

Also with an eye on the arrival of 401(k)-type defined contribution pension plans in Japan, Manhattan- based ALLIANCE CAPITAL MANAGEMENT L.P. merged its two domestic units to improve efficiency. Asset manager ALLIANCE CAPITAL INVESTMENT TRUST MANAGEMENT, INC. took over investment adviser ALLIANCE CAPITAL MANAGEMENT (JAPAN), INC. At the end of last December, the new ALLIANCE CAPITAL ASSET MANAGEMENT, INC. managed $3.4 billion worth of assets. Its portfolio had been roughly twice as large at its peak in July 1998, but with most of Alliance Capital's investments in foreign debt securities, the value of its holdings took a big hit from the problems of developing markets and the rising yen. Alliance Capital Asset Management plans to rebuild its asset total by launching investment trusts that invest in stocks, especially Japanese stocks.

With money continuing to roll into its equity investment trust products, FIDELITY INVESTMENTS JAPAN LTD. plans to beef up its research department so that it can track more publicly traded Japanese companies. The firm's 13 analysts now follow some 500 major companies, but six more analysts will be added by this spring to broaden coverage.

The first product for individual investors from JANUS CAPITAL CORP., one of the top U.S. mutual fund managers, is available in Japan. NOMURA SECURITIES CO., LTD. is selling the Janus Global Technology Fund, which invests in Internet, communications, software and other high technology companies. In a marketing twist, the big brokerage house is selling the fund in both dollar and yen denominations.

ASAHI NVEST INVESTMENT ADVISORY CO., LTD. has rolled out the first investment trust developed in- house since the investment management units of METROPOLITAN LIFE INSURANCE CO. and ASAHI MUTUAL LIFE INSURANCE CO. formed the firm last summer (see Japan-U.S. Business Report No. 358, July 1999, p. 19). The fund, which has a cap of $275.2 million, invests in public and corporate bonds from around the world. An affiliate of MetLife's NVEST COS., L.P. manages the money. Asahi Mutual Life and 12 brokerage houses are marketing the fund.

In a sign of the times, AIU INSURANCE CO. is offering a policy that protects companies against lawsuits involving the contents of their Web sites. The Home Page Plus policy obligates the nonlife insurance unit of AMERICAN INTERNATIONAL GROUP, INC. to pay damages and lawyers' fees if a policyholder loses a libel case.

The world's largest independent asset valuation consulting firm has decided that the time is right to expand operations in Japan in light of the increase in mergers and acquisitions, securitization of assets and other transactions requiring supportable valuations. AMERICAN APPRAISAL ASSOCIATES, INC. already has an office in Tokyo. However, it recently decided to partner with SUMITOMO MARINE & FIRE INSURANCE CO., LTD. and that company's SUMITOMO MARINE RESEARCH INSTITUTE, INC. consulting unit to broaden its market reach. SMRI will introduce its clients to American Appraisal's services, which span valuations of virtually any type of asset for almost any purpose. To date, valuation consulting in Japan has been monopolized by domestic brokerage houses and accounting firms.

An exchange rate of ¥109=$1.00 was used in this report.aaaaaa

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