Information Meeting: Summary of Q&A Session（PDF：109KB）

Information Meeting for Financial Results for the Six Months Ended September 30, 2019

Summary of Q&A Session

Date: October 23, 2019

Presenter: Shinichi Fuki, CEO

Q1. How do you evaluate the number of IPOs (3) in the first half? Also, what is your full-year estimate of IPOs?

A1. IPO numbers in the first half were satisfactory. Our estimate of 6-8 IPOs for the whole year remains unchanged, but as more cautious approach has been taken toward IPO due diligence, it is still unpredictable whether the expected IPOs will proceed as planned.

Q2. Please tell us about your policy on the SV3 Fund which is approaching maturity.

A2. SV3 is a large size fund, so it took time to complete new investment activity and the exit process is still underway. We have been selling portfolio companies with no upside potential, but still hold 5-6 companies for which a decent IPO is expected. Therefore, we plan to re-extend the fund term based on the consent of the fund investors.

Q3. Fundraising for the new fund (SV6) seems to have fallen behind schedule. What is the current situation?

A3. Due to changes in the environment, there is no room for complacency than initially forecast. Compared to our last fundraising, investors have become more cautious. Our policy is to raise funds approximate to the target amount by the end of December, but as some institutional investors are not reviewing their asset allocation until next year, the number of investors may increase after the New Year.

Q4. There have been no overseas IPOs for some time. Has the deteriorating environment caused delays in IPOs or valuation problems?

A4. There are several US and Asian portfolio companies in the pipeline expecting an IPO or a trade sale in the current fiscal year. But regarding US companies, contributions to JAFCO's financial results will be limited because these will be exits from the US funds in which we have sold most of our interests.

Q5. Due to the establishment of SV6, the effective free cash balance (cash and deposits with no specific usage) was ¥10.5 billion. At which balance level will you start considering procuring additional funds?

A5. Uncalled commitments to funds will be paid over several years, so if portfolio companies achieve exits steadily, allowing funds to circulate, we will not fall short of cash immediately. But as there are plans to establish new overseas funds, we will be short on cash if capital commitments outpace exits. Or, if the market environment changes drastically and causes the exits to stall, cash will be in short supply. As investments in unlisted shares are illiquid, we have no plans to make a large loan. In case we run

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short of funds, we will respond by selling investment securities that we hold for pure investment purposes.

Q6. The investment loss reserve ratio remains low at 14%. Will it get back to the 20% range in the future?

A6. Based on our past experiences, we think a reserve ratio of around 20% is adequate. Normally, reserves are made several years after investment by assessing the situation, not immediately after investment, so the reserve ratio falls when the investment pace rises. Due to the large fund size of SV6, the number of new investments is rising, so the reserve ratio is expected to remain low for some time.

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