Yuki Yaginuma: So, alternative investments, the asset manager in Europe as well as the United States from January to March in 2024 fundraising and exit, there are a number of companies that are turning positive. So from your perspective, this capital recycling environment, how do you perceive this? Do you think that it has bottomed out and thereby you are beginning to turn slightly more bullish than before and, the direction, if there was any changes from the last quarterly result session?
Kazuki Yamamoto: So as alternative fund, there has been a comment of the signs of bottoming out. So there has been a message, a positive message being incorporated. So the main battlefield of infrastructure or renewable energy, the sizable deals, in fact, those kinds of opportunities may start to emerge earlier than before. So the mid cap, however, the timeline, from the business earnings perspective, it may take a little more time for the mid caps. And in addition to that, our US operations, so far as the US operation is concerned, real estate as well as mortgage business in those areas, especially the housing related, because of the long-term interest rate, we do foresee that they’re beginning to come down that may work out to be positive as well, which means that they would — which we have no major concern as to further deterioration.
But of course, we would continue to control the credit risk but in the next year’s plan, we would start to sort of see some positive kind of move towards exploring new investment, so that the sourcing capabilities, as the order stance, may perhaps be — will — there could be a shift from — well we haven’t changed it yet, but there could be a possibility of our stance turning from defensive to maybe slightly offensive. So, things are beginning to show some signs of moving to the positive zone. Thank you.
Operator: Thank you. UBS Securities’ Okada san, please ask your question.
Taiki Okada: Your three businesses, I would like to understand the business environment. Starting with credit, asset is slightly increasing and profit is also growing. By asset class, is there a specific asset class that you have some credit concerns? I understand there is no CRA [Phonetic] exposure, but what about the other asset classes? Private equity exit, alternative investment was just mentioned, but private equity exit environment right now, maybe the — well in the past maybe the price was not satisfactory, but is it improving? And also the profit momentum of real estate has not really recovered and BS issuance has to recover otherwise or on its own cannot really recover the profit level. Is that the correct understanding?
Kazuki Yamamoto: Thank you for your questions. Please turn to page 27. Credit, as you have mentioned, we are increasing the asset slightly and also the profit is up. Main drivers include the following, investment grade AAA class yield and spread has tightened somewhat more recently, but we believe that this is the level at which we can consider investment. So, we are pushing forward with that to some extent and it has some positive impact. But we need to pay close attention to asset quality, which means that investment grade that is easier for us to assess or review is mostly targeted. And concerns would be for relatively high-risk portion, asset management or servicing kind of capability would be needed, which means that in the credit segment we don’t go after big risks.
And also early stage growth names, still early to look at it as credit, but the market investors are already tapping into that expecting recovery in the future. So, we will be taking a look at asset classes in great detail. CBSR [Phonetic], yes, we are owning that as part of investment to some extent, but these are not really plain vanilla office type thing. We are actually investing into various assets. So high sharing or investment or loans, we don’t really have those so much. As far as business state goes, agency is seeing a recovery trend and also long-term interest rate is going down, which means that housing stocks will increase. Inflation is also a factor. Origination environment, we’ll have to recover a little bit more until we strengthen our efforts again.
We have done some restructuring and some efforts but we will cautiously look at this market. And the human resource and platform in this segment is also a focus. As far as PE investment is concerned, of course price is important but funding of the buyer is one of the challenges. In mid cap, especially regional banks in the US, their lending appetite has not really recovered fully or sufficiently. And the buyers that would be interested in our portfolio are still waiting for that improvement before they start negotiating. And of course, we are carefully monitoring the movement of different companies, and interest rate hike is affecting performance, so we need to see performance improvement in portfolio companies and buyers need to have sufficient funds, and those will be the catalysts for this business.
Taiki Okada: Thank you very much for a very detailed explanation.
Operator: Thank you for the question. So, the time is almost up. So the next person is going to be the last question. Niwa san of Citi Securities, over to you.
Koichi Niwa: Thank you very much. I am Niwa from Citi. ORIX Europe — can you hear my voice? I’d like to ask a question about ORIX Europe. So AUM is expanding in ORIX Europe, however, inflow of the money in fact has not been solid. So although you are generating the profit, but it looks as if things are pretty tough. So what is your takeaway of the business in actuality? So there seems to be a stability of the businesses and profitability may be high, however, in the next year, and also for the mid-term going over and beyond 40 billion yen and becoming a driver of your growth, I cannot have confidence in ORIX Europe’s businesses going forward. I know that you’re working on the capital recycling, but what is your understanding of this segment? So this is my question. Thank you.
Kazuki Yamamoto: Thank you for the question. So well, there was a question from Otsuka san as well, so these overseas segments, vis-à-vis our target and the progress that we have made so far, so there seems to be a difficulty in achieving our full year target at this point in time. So ORIX Europe, the biggest driver, in fact, is the hedge cost. Euro denominated funding cost, in other words, fortunately, is that dragger, it is a negative aspect. So Robeco and others, so it is slightly away from the performance of Robeco, for example. So internally, it is our policy for ALM, as a matter of fact, but the fully hedge making use of ForEx — forward ForEx, and making the issuance of the corporate bond, for example so that will be a little more accurate in terms of financing — finance management.
And also AUM of Robeco, for example, because of the market recovery, the business conditions are improving slightly, but the asset management businesses as a whole, that’s expanding and also the fee level competition. Structurally, the competition is getting harsher. So in order for us to make up for these negative factors, we may have to introduce new products, and also from mutual fund to ETF, in other words, a trend shift, just like it has been the case in United States. So I think we would have to be applying some ingenuity to the business operations. But at any rate, if it was not for the hedge costs, the investment return for us has been positively contributing to the overall business performance. So therefore, to the industry as well as the Euro, we would have to foresee how the trend is going to be going forward, that will determine our strategy going forward.
Koichi Niwa: Thank you very much. That was very helpful.
Kazuki Yamamoto: Thank you.
Operator: That concludes the Q&A session and final word from Yamamoto san.
Kazuki Yamamoto: Thank you. I wasn’t ready for this, but as I said before, for this fiscal year, we’re struggling overseas but it’s been offset by the performance in Japan and we will continue to complete the projects that we’re working on. And by doing so, we want to achieve the target that we have disclosed and we will have deep discussion about what to do for the next fiscal year. And at the year-end earnings announcement, we are hoping to share with you our future direction. Thank you very much for taking time out of your busy schedule and sorry about going over the scheduled time. Thank you.
Operator: Thank you and that concludes the third quarter consolidated financial results for the nine months ended December 31, 2023. Thank you for staying until the end of the program.
