Yet Another Public-Private Fund ?

According to The Nikkei yesterday, "The government plans to set up a public-private fund to aid the development of innovative drugs targeting cancer, diabetes and other diseases that are difficult to treat."

 "Legislation will be submitted to the Diet next year to enable the public National Institute of Biomedical Innovation to raise long-term investment funds. The institute will work with such research organizations as Riken to find promising projects pursued by universities or individual researchers."

 "In addition to the government-backed Innovation Network Corp. of Japan (INCJ), financial institutions, pharmaceutical companies and venture capital firms are expected to contribute, with the fundraising target set at JPY 30-40 billion (USD 380-500 million) by fiscal 2014. Research on treatments using induced pluripotent stem cells, or iPS cells, will likely be covered by the fund."

This is yet another initiative taken by the Government to establish "public-private" funds. Politicians and bureaucrats must be seeing a public-private fund as a wonderful means to meet investment requirements of certain sectors in Japan without "explicit" budget allocations.

It would be fair to say that INCJ set the model, where the Government and and private companies contribute a small amount of capital, while most of the investable proceeds are funded by Government-guaranteed loans from banks. ETIC pretty much followed suit and its huge success in the JAL turnaround may have lead the policy makers to create more.

A bill to establish public-private infrastructure funds was submitted to the last Diet but it was not discussed due to the dicker between the leading party and opposition parties concerning the timing of the next election. The bill to establish public-private agricultural funds was passed with strings attached, which may hamper the original idea of encouraging free competition in Japan's agri-sector.

In the cases of infrastructure, agriculture and pharma funds, the Government expects the fund managers to raise substantial amount of private money by themselves. This is very tough, especially where there is an expectation for a degree of Government involvements.