BOJ Review: Recent Trends in Private Funds
Research Overview The Bank of Japan published on September 12, 2025, the latest analysis on trends in Private Equity (PE) funds and Private Debt (PD) funds. Authors are Keita Takemura, Yuko Iwamura, and Makoto Kutsudatsu from the Financial System and Bank Examination Department.
Current Status of PE Funds PE funds, which expanded their assets under management primarily in the United States after the Global Financial Crisis, are facing the following challenges:
- Performance Deterioration: Sluggish performance due to valuation declines of portfolio companies amid rising overseas interest rates
- Sale Delays: Delays in the sale process of portfolio companies
- Market Environment Changes: Financial tightening cycle affecting investment strategies
PD Fund Trends Private debt funds maintain relatively solid conditions:
- Profitability: Solid performance backed by thick lending spreads
- Intensified Competition: Heightened competition due to increased market entrants
- Spread Compression: Tendency toward tighter spreads amid intensified competition
Portfolio Company Conditions PE and PD fund portfolio companies face mixed circumstances:
- Maintained Performance: Generally maintaining solid business performance
- Increased Interest Burden: Facing increased interest payment burden due to rising rates
- Credit Quality Risk: Need to monitor credit quality trends closely
Impact on Domestic Financial Institutions Expanding involvement of Japanese banks and domestic institutional investors raises concerns about impact on Japan's financial system:
- Expanded Interconnectedness: Increasing interconnectedness with PE and PD funds through investment and lending
- Systemic Risk: Growing potential impact on the financial system
- Monitoring Framework: Heightened need to closely monitor future developments
This review provides the perspective of Japan's monetary policy authorities on the growth of private fund markets and the associated changes in risk profiles.