New Horizon to raise up to $560 million

New Horizon Capital's Chief Executive Officer Yasushi Ando attends the Reuters Investment Summit in Tokyo June 28, 2010.

TOKYO (Reuters) - Japanese private equity firm New Horizon Capital plans to raise up to 50 billion yen ($560 million) for its second fund for buyouts of small and medium-sized firms, its chief executive said on Monday.

Yasushi Ando also told the Reuters Japan Investment Summit that he expects his business to be boosted by new government guidelines unveiled this month that should open the door for public financial institutions to invest in private equity.

Japan's private equity market is mired in a slump, with the value of deals coming to just $1.5 billion so far in 2010, compared with $5.9 billion for all of 2009, and down sharply from $10.4 billion in 2008 and a peak of $21 billion in 2007.

Deals should pick up as corporate profits improve, bringing lofty valuations back down to more attractive levels, and as it becomes easier to raise funds, helped in part by the new government guidelines, Ando said.

The government, as part of its new growth strategy, has decided in principle that the public pension fund, the "Yucho" postal savings and the "Kanpo" insurance systems, will be free to consider investing in private equity, Ando said.

Funds will also be able to receive money from an institution affiliated with the trade ministry that is aiming to bolster funding for smaller firms.

"The fact that the public pension has not invested in private equity has been a major handicap holding back the private equity market in Japan," Ando said. "This is a very important step for private equity and the industrial sector."

Ando spun off New Horizon in late 2006 from Phoenix Capital, another private equity firm he started that had grown to six funds worth a combined 220 billion yen.

New Horizon bought Hitachi Housetec, a maker of system kitchens, water softeners and other home equipment, from Hitachi Chemical Co (4217.T), in late 2007, its only deal to date.

Ando said its first fund would likely likely close in August or September with about 12 billion yen. About 8 billion yen was put into Hitachi Housetec and the remaining money will likely be invested in two deals currently under consideration, he said.

New Horizon will look to raise 30 to 50 billion yen for a second fund by March next year, and look for targets among small and medium-sized firms and units being sold by conglomerates keen to unload non-core or unprofitable assets, Ando said.

The fund's main exit scenario for Hitachi Housetec is an initial public offering in 2013, but it holds on to the option of a trade sale and has received some offers of minority investments from other firms, Ando said.

(Editing by Edwina Gibbs and David Cowell)