Japan in midst of ‘multi-decade’ move to private markets

Private credit firms, encouraged by a combination of macroeconomic factors and changing investor attitudes to alternative credit, are expanding their presence in Japan.

Fiera Capital opened a Tokyo office in October 2025 and made a number of hires, including C hinatsu Aoyama as director, private markets specialist, earlier this year.

CJ Morrell, managing director and head of Asia distribution at Fiera Capital, said that “Japan Inc [a term used for corporate Japan] is still very much stuck in that 60 per cent debt, 30 per cent equity, 10 per cent hedge fund/alternatives” approach to asset allocation.

However, he explained that “higher inflation and choppy, volatile bond markets”, has prompted a rethink. “Japan Inc has been looking for alternatives, and the private market can deliver that,” he added.

According to Morrell, allocations to private markets among institutional Japanese investors range from five per cent to 15 per cent, compared to around 40 per cent in Canada, the US and Western Europe. “We are in the very early stages of what I think will be a multi-decade move to embrace private markets,” he said.

Inflection point

Takeshi Yamamoto, head of capital formation, Japan at Benefit Street Partners (BSP), and who joined the firm from Blue Owl Japan earlier this year, believes “private credit is at a clear inflection point”.

“Historically, Japanese institutional investors… have been under allocated compared to their global peers,” said Yamamoto. “One part of the story is the normalisation of the global allocation base.”

Meanwhile, Kai Yasutomi, vice president at BSP, said that the drive to improve corporate governance in Japan means that institutional investors are “trying to get higher returns but with capital efficient methods”.

“I think we’re seeing a good trend in terms of these clients are more sophisticated and more open to these new types of investments, like private credit,” he added.

Tomoya Suzuki, senior credit officer at Moody’s, observed that Japan’s private credit market is expanding across direct lending, mezzanine, distressed and asset-backed finance.

“Demand for fund finance – including subscription facilities – and bank lending to private funds is rising alongside sector growth, driven by corporate restructuring, increased startup activity, and demographic trends supporting mergers and acquisitions activity,” Suzuki noted.

Four years ago, Hamilton Lane launched an open-ended senior private credit fund globally and in Japan. Last year, it established the yen-hedged class of that product, which has proven to be popular among regional banks, according to Tomoko Kitao, managing director, client solutions at the firm.

“In the past, regional banks have structurally driven appetite for overseas credit funds because, in Japan, it’s been difficult for them to lend with a high yield, given the low interest rate and sluggish demand for capital,” she explained, noting that the fund also “resonated” with corporate pension funds.

Patience needed

Private credit firms that want to begin operating in Japan will need to have “patience, perspective and long-term thinking” and be prepared for “extremely detailed reporting requirements”, Fiera’s Morrell noted.

While BSP’s Yasutomi said: “You really have to build a relationship with clients – they’re not going to invest with you after one meeting, it’s after multiple meetings.”