Japanese Firms Seek M&A Funding as Loan Funds Step into the Gap Left by Banks

【Financial News, Tokyo—Correspondent Seo Hye-jin】Loan funds that lend directly to companies are being launched one after another in Japan. Corporate demand for funds is growing as mergers and acquisitions (M&A) expand, but deposits—the source of bank lending—are not increasing at the same pace. In Japan’s corporate finance market, long dominated by banks, “private credit,” which pools institutional investors’ money to make loans, is emerging as a new source of funding.
According to the Nikkei on the 21st, Polaris Capital Group plans to launch a corporate loan fund worth ¥100 billion (about 847 billion won) as early as fiscal 2026. It would be among the largest corporate loan funds in Japan. The company will raise funds from institutional investors, including life insurers and pension funds, and enter the lending business by establishing a specialized subsidiary.
Topaz Capital has also begun raising funds to establish a new fund worth ¥70 billion to ¥100 billion (about 592.9 billion to 847 billion won). It plans to put up to ¥300 billion (about 2.541 trillion won), including its existing funds, toward corporate lending.

The key market targeted by loan funds is M&A financing. According to research firm Recof Data, Japanese companies were involved in 3,883 M&A deals from January to September this year, a record high for that period. Demand for acquisition financing is also growing as large-scale acquisitions and business succession deals increase.
Until now, funding has been concentrated among major banks. The outstanding balance of M&A loans Japanese companies received from major banks reached ¥6.6 trillion (about 55.902 trillion won) at the end of September 2023, 2.5 times the pre-pandemic level. Megabanks supplied 80% of that total.
Banks, however, are struggling to secure enough funding to meet rising loan demand. Japan’s loan-to-deposit ratio stood at 65% at the end of March this year, up 2.6 percentage points over the past five years. Rising interest rates have also intensified competition among banks to attract deposits.
Corporate lending by Sumitomo Mitsui Financial Group was up about 10% last September from the same month a year earlier. President Toru Nakashima said, “It is quite difficult to increase lending when deposits are not growing.”

Loan funds moving into this gap charge higher interest rates than banks. While major banks’ lending rates are typically 3% to 4% a year, fund rates are around 4% to 6%. This is because their funding costs are higher than those of banks, which use deposits.
Polaris plans to provide financing mainly through subordinated loans. Their repayment priority is lower than that of other debt, but they can command rates close to 10% a year. The firm is also considering acquiring corporate loan assets held by megabanks. Topaz plans to lend not only for M&A but also for capital investment and real estate purchases.
Banks are also entering the loan fund business, using external capital. By pooling institutional investors’ money to make loans, they are relatively less subject to international regulations related to capital requirements than when they lend directly, making it easier to provide large amounts of funding.
Sumitomo Mitsui Banking Corporation established a fund jointly with U.S. asset manager Neuberger Berman. It plans to expand the fund’s assets under management to ¥500 billion (about 4.235 trillion won) in five years. Mitsubishi UFJ Financial Group (MUFG) is also working with BlackRock and others.
Rising interest rates have also made lending more attractive to investment funds. Lending allows them to earn interest income in addition to following their traditional approach of acquiring companies, increasing their value, and then selling them.
The private credit market is already well developed in the United States and Europe. According to UK research firm Preqin, North America’s assets under management stood at $1.5 trillion at the end of 2024, about 200 times Japan’s.


[email protected] Seo Hye-jin Reporter