ORIX Corporation (8591) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. We'd like to start the program punctually. My name is [ Paddy Hogan ]. I run the Investor Relations function here at ORIX. I'm delighted to welcome you here today for our inaugural IR day. For Japanese equities and investing in Japan from outside Tokyo, London really is the global capital for international equities. Hence, our decision to host today's event here. Some of you, and you know who you are, have traveled a long way to get here. And we, particularly the executive management team, greatly appreciate your support. Over the next 90 minutes or so, you'll meet the executives on my left and right, who are focused on improving returns. Our first speaker, Hidetake Takahashi joined ORIX in 1993 and directly from university. He's held a variety of roles during his long tenure at ORIX, including time spent in Renewable Energy, Private Equity, Real Estate and Corporate Finance. Prior to being appointed CEO earlier this year, he served as COO and is the architect behind the current medium-term plan, which was introduced in May of last year. To my left, please join me in welcoming him and the other executives. Thank you.

Thank you, [ Paddy ], and good afternoon, everyone, and thank you for joining -- thank you very much for joining us today. I am Hidetake Takahashi, President and Group CEO of ORIX Corporation. We are delighted to host our first Investor Day here in London. Since becoming President last year, I have made investor engagement a top priority, conducting more than 200 meetings over the past 18 months. Through those discussions, I have received many thoughtful questions about ORIX. The key message we would like to share with you today is simple, why ORIX and why now. As the global economy and industry landscape continue to evolve, we believe ORIX is uniquely positioned to capture new growth opportunities and create sustainable value. By leveraging our device wide portfolio, global platform and long-standing expertise in finance, operation and investments. This is these agenda. Let me introduce our leadership team here. From my right, Satoru Matsuzaki, COO of Japan and APAC; and Shuji Irie, CEO of Infrastructure. On left-hand side, Terry Suzuki, COO of USA and Europe; and finally, Masa Yamada, our Group CFO and the Chief Strategy Officer. Following my remarks, they will provide further details on our strategy and execution in their respective areas. Then we will conclude with the Q&A session and look forward to your questions. Thank you use again for being with us, and I hope you enjoy the session. So with that, let me begin my remarks. Today, I will focus on four key questions. I'm frequently asked by investors. First, why ORIX continues to evolve. In other word, why ORIX may appear so complex? Second, what our recent reorganization and new management structure intended to achieve. Third, how we will achieve our long-term vision. And finally, our capital allocation policy. Through those topics, I hope to provide a clear understanding of how ORIX create value and how we intend to enhance that value going forward. To others first question, let me briefly walk you through our history. We introduced [ resync ] to Japan in 1964. From early stage, we began diversifying our business and expanding internationally. Since then, we have continued to evolve our business portfolio. There are three philosophies behind this. First, standing on our own. Second, being agile, flexible and adaptable. And third, recognizing that change is the only constant. As all business life cycles and monoline business eventually mature, sustainable growth requires continuous evolution. This is why ORIX has expanded into adjacent domains over time. As a result, we have delivered consistent profitability throughout our 62-year history. Importantly, we aim to go beyond financing. We provide not only capital but also operational capabilities and expertise. Now let me address the key question, why ORIX continue to evolve? Our core strengths rise in our origination and execution capabilities, enabling us to identify high-quality investment opportunities. But origination alone is not enough. We evaluate opportunities through our disciplined risk management framework, leveraging both financial and operational expertise. We then create value through our hands-on roach while crossly monitoring performance throughout the investment cycle. Finally, we make disciplined decisions on whether to hold or exit. This allow us to optimize our portfolio and continuous recycling capital and turn into new growth area. This value creation cycle enables us to achieve profitable and sustainable growth. In short, ORIX is a powerful origination and value creation engine. And diversification is not complexity for its own sake. It is a core strength that we manage with this [ spring ]. Let me turn on our new management structure. In January, we reorganized the group into five business units and five corporate functions. Following this, we introduced so-called [ CXO ] system starting in April. This [ reorg ] aims to optimize resource allocation and the CEO and accelerate new business creation through both intra and cross unit collaboration. At the same time, we have expanded the delegation of authority to individual business unit. This in our faster and more accountable decision-making closer to the front line. Our CFO ensures a strong financial discipline and CRO provides robust risk oversight. Each CXO is responsible for not only their own area, but also for contributing to overall group management alongside the CEO. As CEO, my primary responsibility is to ensure that ORIX Group continues to enhance corporate value over the long term. With that in mind, last year, I had to establish our long-term vision, making impact through organic investment and operation and business solutions. We also set the financial targets for 2035, 15% ROE and JPY 1 trillion net income. These targets are ambitious but achievable. They reflect our commitment to sustainable growth and despite value creation. To achieve that long-term vision, we will continue to advance three key initiatives: portfolio optimization, association of risk management and new business creation. In addition, we have introduced a new initiative, business model transformation. This will be driven by what we call two forms of [ Shinka ] in Japanese, one meaning deepening and the other main evolution. Through this, we will further deepen and evolve our two core business models. Let me explain how we are transforming our two core business models, and alternative investment and operations. We utilize our balance sheet more efficiently and accelerate investments in organic asset where we can directly create value and then transition assets into AUM. We will then evolve this business model into alternative investment, operations and asset management. Under Business Solutions, we continue to deepen customer touch point through a marketing approach and expand our fee for service offerings. At the same time, by growing our asset operations and management services across key areas, including mobility, the estate and renewables. We'll enhance stable and recurring fee income. CFO Masa we elaborate further on AUM and fee income growth strategy in his presentation. So let me talk on capital allocation policy. Our capital allocation policy is to maximize corporate value over the long term. The key principle is balanced. We aim to maintain a balanced approach between growth investment and shareholder returns while preserving strong financial discipline. We will continue to prioritize growth investments in areas where ORIX can leverage its strength. At the same time, we remain committed to delivering stable dividends. In addition, we will execute share buybacks in a disciplined and flexible manner, particularly when capital is returned through one-off divestments. Through this approach, we aim to enhance capital efficiency while maintaining balance sheet strength. Finally, let me touch upon valuation. We have positioned ROE improvement as our top management priority. Through initiatives such as portfolio optimization, our price to book has improved to close to approximately 1.5x. While we continue to focus on ROE. Going forward, we placed greater emphasis on the numerator by driving sustainable EPS growth. This will be achieved through again, growth investments and business model transformation. Through this effort, my aspiration is to evolve ORIX into a company that is increasingly varied on a price-to-earnings basis. Our goal is not just on asset but to operate and enhance their value and continuously recycling capital into high return opportunities, compounding earnings over time. Ultimately, it is earnings that compound. And this compounding drives our long-term corporate value. With that, this concludes my presentation. And next, Mr. Matsuzaki will present you about our Japan and APAC business. Thank you very much for your attention.

Good afternoon, everyone. I am Satoru Matsuzaki, COO of the Japan and APAC business unit. It is a pleasure to see you in London, and thank you for joining us today. Actually, this is my first time in London in my life. Such a wonderful historic atmosphere and very beautiful weather. I'm completely fall in love with the city. And today, I'd like to walk you through our Japan and APAC business, highlighting our core strengths and how we are driving strategic integration while expanding our business solutions and investment capability across the lesion. First let me outline the structure and the business overview of the Japan and APAC business unit. This unit, our business unit consists of six businesses, Corporate Financial Service, Auto Lease, Rentec and PE Investments, Asia-Pacific and Greater China. This business are built up on the diversified business that ORIX has developed over many years. And I believe this model itself is a source of our competitive advantage. On the top left, Financial Service -- Corporate Financial Services has established a business solution model. This model leverages ORIX's strong customer reach compared with peers to provide financing, value services, succession-related investments. And one more, there is one of the important function that is a collaboration across the group. As mentioned in Takahashi, CEO's presentation, Business Solutions is a core business model for us, and I will refer to several times throughout my presentation. So I hope you will keep it in mind. The Auto business covers leasing, rent-a-car and mobility services. It manages approximately 1.42 million vehicles, placing it's fleet among the largest in the world. Rentec, primarily provide and leasing services for electric measurement instruments and ICT-related equipment. As a leading company in Japan with approximately 40,000 types of equipment. It supports a wide range of customer needs. The private equity investment business conduct, domestic private equity investment based on our alternative investment and operations model. We have a strong track record with total of 33 investments made to date. Our private equity strategy has delivered high returns using strict investment disciplines. Including an IRR of approximately 25% and [ MYC ] of around 3.5x. As with Business Solutions, Alternative Investment and Operations is another core business model that underpins our investment approach. Overseas in Asia Pacific, we operate in a total of 12 countries through subsidiary in nine countries and equity [ master ] affiliate in three countries. We provide financial services and conduct private equity investments. Finally, Greater China, we conduct financial services and private equity investment through local entities in Mainland China, Hong Kong and Taiwan. The next page, please. This page shows strength in segment profit and ROE. The line graph is be pleasant ROE and the bar chart represents segment profit. Looking at the actual result, Segment profit grew significantly from JPY 131 billion in fiscal year March '23, JPY 257 billion in fiscal year March '26. ROE also improved from 7.9% to 12.2%. While overall profit and ROE has improved steadily I would like to focus on the differences among the business units on the [ left hand side ]. First, [ old analytics ] are our most profitable businesses with ROE and high teens at around 19%. These businesses have built a highly efficient and scalable models, combining stable recurring revenues with strong operational capabilities. In particular, both businesses have evolved into Business Process Outsourcing, BPO type models, which allow them to generate stable earnings and maintain high efficiency. Corporate Financial Services and PE investments delivered mid-teen ROEs of around 15% to 16%. Corporate Financial Services delivers this level of high ROE through our business solution model, combining financing and range of services. PE investment, on the other hand, achieved a similar level of high ROE through disciplined and on investment and value creation. In Asia Pacific, ROE is currently at a single-digit level yet, but we expect it to reach double digits soon. And more importantly, we see this region as a key growth driver going forward. By expanding our Business Solutions model and strengthening cross-line strategic integration we aim to significantly improve both scale and profitability. Finally, Greater China currently showed a lower level. This reflects a combination of market conditions, port issues and the structural challenges. We clearly published this region as an area for restructuring and portfolio optimization. This page, our APAC operation is each country have grown steadily. However, given the remarkable economic growth in this market, we believe there is significant potential to capture more business opportunity and further accelerate diversification. So far, each country has largely developed business independently. As a result, we have not fully utilized group-wide resources until now, and our businesses has remained large stand-alone. Also, overseas expansion into businesses other than out leasing and finance has been limited. Going forward, we will expand the business solution model that we have developed in Japan [ AgroStar ] APAC region. We need to find out adjacent business area and become more diversified organization. This is a case study of our OR fleet business. As I mentioned earlier, the Asia-Pac unities currently are the single-digit ROE yet. In contrast, all [ AGL ], our subsidiary in Australia has developed a service drive integrated leasing model that combined financing with recurring service revenue and this model is already delivering a mid-teen ROE. ROE is now 13.5% Australian business. Of course, ORIX Japan also supports strongly this project. We announced scaling this business model across the APAC region, replicating problem business solution across large markets. This will allow us to deepen customer relationships, enhance returns through more service model and build a scalable lesion platform. As these strategic integration progresses, we expected to drive ROE improvement across the broader Asia-Pacific business. In Japan, as I mentioned, we have developed a wide range of business solutions, two other diverse client needs going well beyond the traditional financing. This capability have also evolved over time. For example, what began with services such as Life Insurance Brokerage have expanded into more sophisticated such as [indiscernible] Brokerage, reflecting our deepening expertise. What differentiates us is not only a single product that our ability to combine multiple solutions, that add to each client needs. We aim to bring this approach to the APAC region, replicating this Japan's developed business solutions. In the following page, I will share an example for how we combine these solutions in practice. Let me share an example of how corporate finance services in Japan provide business solutions. In this case, we supported both the seller and the buyer and business succession transaction. For the seller, we provided [indiscernible] services and also transfer aircraft assets from our own balance sheet. For the buyer, we announced the acquisition finance to support the transaction. What is important here is there are not stand-alone services, we deliver solutions in an integrated manner centered around the client needs. This is a typical example of how we leverage our broad capability to enhance profitability while deepening client relationships. We believe that this ability to provide a wide range of integrated business solutions alongside financing represent one of ORIX's key competitive advantage and is not easily replicated by others. In addition to the strategic integration and business solution initiatives that I have already discussed, I would now like to turn to our alternative investments and operations. [ AIO ], which represents another key pillar of our business model. Together with QIA, you already know the Qatar Investment Authority. We have established a joint investment platform with approximately USD 2.5 billion in equity and have already begun deploying capital, including the first investment from the fund. Through this platform, we combine ORIX's Japan expertise and origination capabilities with QIA large-scale long-term global capital. This enable us to source and execute investment opportunities more effectively, particularly in mid-sized company and corporate carve-outs, where our local networks and execution capabilities can be leveraged. As an initial step, we will fully deploy the investment capacity over the QIA fund and build towards the establishment of a second fund with [indiscernible] [ LPs ]. In Japan, we are seeing a weak yen, low interest rate compared to overseas market and easy access to bank financing. These, combined with a clear inflationary trend and capital inflows from for investors have further intensified the competition our investment opportunity in the private equity market in Japan. As a result, valuations have risen significantly making it increasingly difficult to maintain a competitive edge using conventional investment approach alone. Under these circumstances, it is essential to further evolve our alternative investment and operations model to keep our competitive edge in the private equity industry. Our business aim to contribute to Alex's goal of achieving JPY 1 trillion in under asset management by also leveraging knowledge and expertise from infrastructure and the US, Europe segment and other segment. The final page, let me conclude with the mission of the APAC COO. The Japan and APAC business unit will become a growth platform for the group. I have let our staff know that continue to use the same approach will not deliver the next phase of growth. Since the 2000, we have created new business new earning peers in this area, such as Private Equity Investment business and Energy and Environment business. Today, both the PE and the Environment and Energy business segments have grown in the businesses, which generate approximately JPY 100 billion in segment profit. The Japan and APAC business unit will continue to be at the set of group's further future growth. And more importantly, the key to achieving our 2030 vision is our people. Developing the next generation of leaders and building a sustainable organization is absolutely essential. We must continue to take ownership of new challenges, identify opportunities outside of and approval activity. Bringing these elements together, we will drive strategic integration across the region with business solutions and our [indiscernible] investment operations as our two core pillars to deliver the next phase of growth in APAC. Thank you very much for listening. Next on stage is Irie's presentation. Please welcome. The floor is yours. Thank you.

So good afternoon, everyone. I am Shuji Irie. I have been leading infrastructure business unit, since as COO since this April. First of all, I just arrived to celebrate England won the game in the World Cup yesterday. Unfortunately, Japan lose the game against Brazil on Monday. So going forward, I strongly [indiscernible] England to get the trophy. So today, I would like to focus on one key message, how we will scale our infrastructure business and make it a core driver of ORIX's future growth. Over the years, ORIX has built strong and diversified infrastructure broth. We have developed businesses across energy, transportation, real estate and public infrastructure. However, sites or own does not create value. The next phase is about how we originate attractive opportunities, how will enhance the value of assets and how we will note those assets into asset management platform, in largely and speedy manner. This is the journey from the successful investor to becoming a leading [indiscernible] asset player. Let me begin with where we stand today. Our infrastructure business has already reached meaningful scale. Today, the unit managed segment asset of JPY 3.6 trillion, and generated segment profit of JPY 280 billion, with 13.9% ROE in the last fiscal year, which is supported by JPY 1.5 trillion equity capital represents 1/3 of total ORIX capital base. So the foundation is already in place. My mission is not to create the business from zero. My mission is to further leverage our capabilities we already have, our investment track record, operating expertise, customer relationship financial strength and combine them into sustainable growth. Our infrastructure platform consists of mainly five ideas, which I want to explain now. The common theme is long-term demand, tangible assets and ability to create additional value through active management. In renewable energy, ORIX operates 3.6 gigawatts of power generation capacity. We are the leading player in Japan. We are now expanding from register solar power to new areas such as battery storage and energy aggregation. Overseas, our subsidiary, [ Alabang ] Energy, its operating renewable base in Europe and United States. We are also expanding into future energy areas, including green ammonia in India. We also do circular economy and newly acquired [ Noden ] [indiscernible] plastic wrapping recycling company. In transportation, ORIX has established strong global presence in outward-facing through [ Abalon ] and ORIX aviation system, OS in [indiscernible]. [ Abalon ], our 30% affiliate, it's one of the world's largest aircraft pricing company, fire OS is also well reorganized in the industry and a leading player in Japanese operating lease investments. Today, they provide us with stronger platform covering aircraft investment, leasing, trading and asset management. In shipping, we have developed a diversified business model, covering ownership, fleet management, brokerage and finance, we are probably only one player who do those kind of covering those kind of the business with sudden scale in Japan. India real state, ORIX has built extensive capabilities across office, residential, logistics, hospitality and mixed-use properties. We also operate asset management platform, including [ J-REIT ] and private funds. Finally, through airports in Kansai and Osaka Integrated Resort project. We continue to expand our role in large public infrastructure. Let me talk about why infrastructure and why ORIX. Infrastructure assets have several attractive characteristics. They provide stable cash flow. They are resilient against inflation. And they have strong institutional demand, adds from the investor as order deposit. And they are well suited with our strategy of improving capital efficiency through asset management. ORIX's competitive advantage comes from four areas. First, what track record on scale. We have built top class positions across multiple infrastructure sectors. Second, our asset management capability. We have decades of experience of investing in operating in single assets. Third, our balance sheet capabilities. Our balance sheet allows us to invest, develop, create value and then efficiently routed the assets to the third-party business. And fourth, particularly in Japan, ORIX is the trusted brand among the stakeholders and investors. The strengths are ORIX to create value beyond ownership. I will now touch on the macro market and our strategy for segment, energy and environment. The renewable market is currently under significant transformation. Following the Russia-Ukraine situation, the market in Europe become challenging. However, the fundamental drivers remain strong, we think. Electricity driven demand, data center growth and national energy security is creating new opportunities. At the same time, business model is changing. Market is moving from government-sponsored business model, such as [ FIT ] towards more market-oriented model, such as [ FYP ], merchant, digitalization and aggregation. So this change provides another opportunity for us and ORIX strategy is strengthening our capabilities in three areas. First, trading capability. Second, asset management capability. Third, O&M, Operation and Management capability. By combining these capabilities, we aim to capture differentiated opportunities throughout the energy value chain. Looking ahead, we see four important growth areas. First, battery storage. Batteries system is increasingly important to stabilize energy demand and supply. Second, digitalization and aggregation. By managing multiple source of energy, intelligently, we can optimize value creation. Third, energy transition solutions, including ammonia. Of course data centers, the growth of AI and cloud service is driving strong demand for power infrastructure. We see these areas are not as separate one, but as one integrated opportunity. Let me move to the transportation. Aircraft leasing is already one of ORIX's strongest global business, which represents 25% of total infrastructure asset. The market benefits from attractive supply-demand dynamics. And aircraft leasing provides stable cash flow together with asset value appreciation opportunities. ORIX has a unique position through both [ Abalon ] and [ OIS ]. However, our ambition is broader than simple aircraft leasing. We aim to expand along the broader market value chain, from aircraft bodies into engine and parts out, as well as trading and related asset management opportunities. In shipping, we also see opportunities to expand our diversified platform. Both aviation and shipping are highly compatible with [indiscernible] asset management. This slide shows our direction in aircraft to asset management. We are actively originating assets from various sources, including Abalon and with using our brand set strategically and together with our forthcoming platform of engine and parts out. We rated assets to investors under management. That investor includes institutional investors during the ventures, Japan's operating lease investors and Japanese aircraft leasing fund, which we are currently preparing and global capital providers. The key message is we are not simply managing aircraft as a result. Moreover, we aim to build structured business ecosystem around aircraft-related assets in this industry. Let me now move to the real estate. After the global financial crisis, ORIX intentionally reduced real estate exposure, to strengthen our portfolio discipline. Between 2018 and 2020, we reduced the proportion from 25% to nearly single digit. However, the environment has changed in today's inflational environment, real estate business still provide attractive opportunities. by managing investment development, operation and asset rotation, along with our diversified capabilities. Going forward, we aim to increase our investment and expand our real estate platform, but remain very disciplined. We will focus on assets where we can create the value through active management, including strategic capital expenditure, revenue management and improvement of operational performance. The property universe is broad. ORIX has plenty of experience across office residential logistics, hospitality and mixed-use assets. We will leverage our strongest origination capability in Japan. Through our local presence and local network, we can identify attractive opportunities. We will focus mainly metropolitan and major city areas where there is stronger demand, better liquidity and greater potential for value enhancement. This slide shows our value creation model. You can see that the ORIX participates throughout the real estate value chain. As I said that we already have established asset management platform, [ JD ] private funds. So by using our balance sheet strategically, we can make active acquisition and after value enhancement loaded to investors under asset management. This creates two sources of value, investment gain and expansion of assets under management. Before conclusion, let me briefly touch on Osaka Integrated Resort. This project represents one of Japan's largest future tourism and entertainment development. It will include hotel, MICE facilities entertainment and other integrated facilities as well as casino service. The project benefits from the location in Osaka Kansai. Strong tourism demand in Osaka City. Connectivity with the three airports in Kansai, which we are operating. Attractive cities to go around such as Kyoto and Kobe and enormous potential for in [indiscernible] tourism, [indiscernible] facility, the construction is going on and we're progressing a schedule, which is going to be opened in 2030. For ORIX, Osaka IR is not only a single project. It represents the opportunity to create value with our existing business, such as hospitality, entertainment and transportation. Let me conclude. Our goal is clear, to become the #1 alternative asset player in the world. And to meaningfully contribute ORIX 15% ROE target. Our differentiation comes from four strengths, strong balance sheet, origination capability, ORIX brand and trust, particularly in Japan and ability to create value through operational management. Going forward, we will focus on four strategic actions. First, optimized asset skills. Second, take disciplined risk and pursue attractive opportunities. Third, further strengthen asset management capabilities. Fourth, development -- develop talent pool across the organization. So the strategy is clear, opportunity is significant, and I will read infrastructure business unit to execute this transformation. Ladies and gentlemen, thank you very much for your attention. And now let me invite Terry, COO for USA and Europe to continue the presentation.

Good afternoon, and thank you for joining us in London. I'm Terry Suzuki, COO of ORIX U.S. and Europe business unit. I got 5 minutes shorter time allocation today. So unfortunately, I cannot deliver any humorous icebreaking story. But anyway, yes, I'm also supporting [indiscernible]. Okay. So in my part, I'll cover three topics. First, a clear picture of our U.S. platform, how it was built, how it performs and where it goes. Second, how we are timing our balance sheet into more capital-efficient fee-generating asset management model. And third, most relevant to this room how ORIX USA and ORIX Europe are coming together as one integrated platform. Let me start with the foundation, more than 4 decades of building in the United States. ORIX USA is not a recent venture. We have built in the United States for over 45 years. We entered in the U.S. in 1981 and expanded across cycles. From leasing into corporate and real estate finance into capital markets and then a diversified alternatives platform. Along the way, we built the platform, we acquired the businesses, sold them and took one of them public. We took [ Hulihan-Locky ] public, combined [ RetCapital ], [ Loncar ] [indiscernible] and [ Hant ] into today's [ Lumen ]. Acquired and later sold the hedge fund, [ Marina ] Investment. Added [ NXT ] Capital in the private business private credit business and Boston Financial and affordable housing. And most recently, took a majority stake in [ Hilco ] Global which is #1 asset valuation liquidation company in U.S. last year. The point is this platform has been assembled over 45 years. to roughly $32 billion in third-party AUM today. In the U.S., which is the largest asset management fee pool in the world, potential is large, and we intend to keep expanding. That longevity and discipline underpinned the strategy I will describe next. Let me address ORIX USA's performance directly for a moment. Everybody is just wondering what's happening, what's going on in the U.S., okay? So our most recent year fiscal year ended March 2026, was weak for ORIX U.S.A with segment profits well below the prior years. on this chart. The reason is very simple. This was not a deterioration in the business. But primarily, onetime noncash impairments of legacy assets. A reset note a trend. We have also derisked our book by cleaning up potential impairments. Monetizing mature investments, including 4 private equity exit announced last year. and recycling the capital into core strategies, [ Hilco ] is one example. From here, net interest margin from our credit business is a stable base. And on top of that, we add growing fee income as AUM expands and recurring gains from equity investments. By the way, ORIX USA completed another private equity acquit realizing over 4x MOIC yesterday. So while we stay cautious on the macro, we expect a brighter outlook based on a solid balance sheet, with less impairments and asset sale gains come through. For our long-term investors, the point is simple. The franchise is intact. The balance sheet is being cleaned up, and the platform's earnings power has not changed. So what is our core business today? Three alternative asset classes, all in the middle market with growing third-party capital. First, corporate private credit, cash flow, enterprise value and the sponsor-backed lending, through platforms, such as NXT and our growth capital business. NXT's Fund VIII has just completed the first closing with more than 1 billion equity commitment, which will give NXT more than 1.8 billion new dry powder. Second, asset-based private credit, lending against quarter and asset value. an area which we are actively expanding with [ Hilco's ] asset valuation expertise. Third, real estate, providing equity and debt in essential sectors such as multifamily and affordable housing through real estate investment group, [ Hilco ], Boston Financial and [ Lumen ]. With other new initiatives, including U.S. multifamily equity, U.K., Europe bridge lending and the U.S. opportunistic strategies. A macro point across asset-based lending and especially real estate, we invest in the hard asset, which tend to hold value under an inflationary environment, a real plus for investors. We may also leverage Hilco into corporate private equity and IP-related investment going forward. In the private asset business, our edge is origination is underwriting and discipline concentrated on the middle market where competition is lighter and risk-adjusted return more attractive and proprietary sourcing drives the pipeline. For investors seeking differentiated access to U.S. private markets, this platform is not easy to replicate. Now to the strategic shift that matters most for returns. Historically, ORIX USA invested its on balance sheet directly, which works but the return on equity cap at the investment return alone. Since around 2020, we have shifted to a hybrid model, utilizing both balance sheet and third-party capital. This is an illustration, but please look at the slide. In all the model, $2 billion of our balance sheet capital is invested directly remaining $2 billion of AUM. On return source and ROE around 10%. In the new model, the same $2 billion becomes a 10% GP co-investment alongside with $18 billion of third-party capital. $20 billion of AUM in total. The same balance sheet now supports 10x the assets and earned from three sources, the investment return on our own investment, management fees and incentive fees. ROE rises to around 25% in this example. The balance sheet does not become smaller, each dollar simply works harder. Co-investing our balance sheet alongside with the third-party capital also creates alignment with investors and let us compete for materially larger deals than a balance sheet-only model. Our balance sheet [indiscernible] assets build a track record, attract investors and is recycled with the discipline. The market [indiscernible] a fee-based asset manager with a higher valuation multiple than the balance sheet intensive finance companies. So as we shift towards the business with recurring management and incentive fees, we are lifting returns on equity and building higher quality earnings. Next, the combination of ORIX U.S.A and ORIX Europe. Together, we manage over $500 billion of third-party assets. ORIX Europe anchored by [ Robeco ], which was founded in 1929 and part of ORIX since 2013, a brings around $476 billion, primarily public markets such as equities and fixed income. ORIX USA adds around $32 billion in the private market, private credit, real estate, private equity. We collectively serve over 1,000 institutional clients and around 3,700 professionals, combined AUM that would place us among the world's 30 largest asset managers. These are highly complementary franchises across public and private and across European and American distributions. With very little overlap. For investors, that means access through one group to U.S. private market strategies alongside deep public market capabilities. One globally integrated asset manager, not two regional players. Across ORIX USA and ORIX Europe, we operate in more than 25 locations, spanning North America, Europe and Asia Pacific. This gives us local market intelligence proximity to broad institutional investor base and reach to place strategies globally. The U.S. and European networks sit in complementary markets, the structure advantage that makes the collaboration. So how do our two platforms create value together? Five priorities. First, distribution. We are working to increase the mutual utilization of our respective client bases and product platforms. Second, joint product development. Strategies for insurance companies are a natural example, needing both public and private capabilities. And the project is already underway. Third, knowledge sharing. [ Robeco ] recently won a private credit mandate in Europe, opening direct dialogue with our U.S. teams. Fourth, market expansion. Over the mid- to long term, we want to extend U.S. strategies such as growth capital and GP solutions into Europe. And expand Hilco across European real estate and Asia asset-based lending. And fifth, U.S. activity support with ORIX USA helping ORIX Europe build its U.S. presence further organically and through acquisitions. We are already seeing early synergies in the distribution and products. The direction is clear, two parallel operations toward a single integrated business unit that shares resources and best practices while preserving the local autonomy for good execution. Let me close on Europe. Robeco is our base to grow, generating in APAC using [ quant ] and AI to scale alpha. And commercializing innovation such as active ETFs, [ quant ], indices and private debt alongside sustainable investing with a reformed wholesale business. Boston Partners, a well-regarded value equity manager with a strong track record, has restructured distribution to accelerate AUM growth. For example, through advisory partners and a new private wealth platform. Harbor Capital is targeting U.S. ETF leadership, building competitive products and growing custom model business. [ Transtrend ] keeps delivering systematic performance through its diversified trend program growing their client and product diversification. So the story comes full circle, a 45-year U.S. platform. a disciplined reset is now behind us. Our more capital exchange model ahead and the integrated U.S. and Europe franchise. A cleaner, trimmer ORIX USA should deliver better quality earnings. And together with ORIX Europe, we can offer investors full product suite across public and private markets. Thank you. Now I invited Masa Yamada, our CFO and CSO, to the stage. Masa, it's yours.

Hello, and good afternoon. My name is Masa Yamada and I'm CFO and CSO, for the avoidance of doubt, CSO being Chief Strategy Officer. I'm relatively new to ORIX. I joined ORIX Feb this year after spending 30 years to be precise, 29 years and 10 months at JPMorgan. And for the recent 12 years, I run the investment banking business in Japan for JPMorgan. And in my session, I would like to talk about the strategy shift towards the third-party asset management business model, which you have already heard about in each of the earlier sessions. So I'll be pretty quick on this page, but briefly, the key is on the back of constraints on our balance sheet model imposed by credit ratings as well as capital efficiency requirements. We are shifting towards a third-party asset management model, where we expect more fee income on top of our own asset-based income. The model requires changes to our business -- sorry, our balance sheet usage, specifically towards the warehousing function as well as provisions of a seed capital and the expansion of AUM through attracting third-party capital is a key to the success. Today, ORIX has a total of JPY 7 trillion, which is about USD 44 billion of the -- sorry, private asset AUM on the page left. To put this in context, as we have JPY 18 trillion of the total assets on the balance sheet today. So the ratio of private asset AUM to the total assets is so 70 divided by 18, so about 0.4x. And to be more precise, if you exclude the total assets of the bank that we announced sell this year, that ratio becomes a bit higher. And if you compare that ratio with the global peers on the page. So by the way, company A is Apollo, company B, Macquarie and company C is [ ARRIS ] management. In the case of Apollo, the ratio is 2.2% and Macquarie is 0.8%, and [ ARRIS ] is 22.7% as based on public information. And a few observations here, right? So first one is that we have more room to grow a private asset AUM. Compared to the size of our balance sheet, the -- we should target the ratio to be at least that of Macquarie and over the long term to that of Apollo. The second point is that we have the structural advantage of our balance sheet to leverage. Our model would be closer to, again, that of Macquarie and also that of Apollo with the scenes balance sheet. So this is how we envision our private asset AUM to grow. We have two growth levers here at the U.S. and Japan. And over JPY 7 trillion of private asset AUM today JPY 2 trillion in Japan and JPY 5 trillion equivalent in the U.S. As Terry explained the strategy earlier session, we expect ORIX USA continue to grow private asset at much higher pace than we have seen in the past. And meanwhile, Japan private asset market is at its nice stage. According to the Bank of Japan data set, the global private asset market stands at USD 15 trillion as of 2024. And while U.S. represents about 51% and Europe, 20% and Japan represents only 1%. And Japanese equity market has already taken on the back of regulatory reform, as you know, and also structural changes, as you know. And improvements in interest rates and inflation are also making Japanese private asset market increasingly attractive to many of the institute investors. And prepare and early is important. And I think we view Japan market as a huge upside over the mid- to long term. Again, this one, this is how ORIX will operate in the Japanese private asset market. With the help of strategic consulting fund, we came up with a potential addressable wallet to be between JPY 35 trillion to JPY 50 trillion over the next 5 years. Specific at size of each asset class is on the left box of the page, and most of them, if not all, are within 17 strategic areas under Prime Minister Takaichi's growth strategy. Over the next few pages, I will talk about how ORIX can add value in the private asset market. So we believe ORIX is uniquely positioned for the private asset market opportunities in Japan. We laid out our core capabilities on the left-hand side of the page. What really differentiates us from competition would be really the first two points. That is origination capabilities and operational excellence, banks don't have needs of the capabilities and trading houses probably help them. But their main focus would be more on distribution side or I guess, transaction side of the business as opposed to the finance. We also are conscious of what we need to have in order to be successful in these opportunities. And again, out those items on the right-hand side of the page. They are all crucial for the success and we started building foundation for each, including shift of people's mindset at every layer of the organization. we'll connect a regional distribution platform to develop a distribution platform in Japan to provide institutional investors access to attractive investment opportunities globally. Okay. [indiscernible], global investors such as PE-backed insurance companies, infra funds as well as [ SWS ] and pension funds have shown strong interest in the potential of Japanese private asset market for the recent years. And for many of the global players as they don't have local platforms, they would likely need to team up with some local players. And on the right-hand side of the page, a few recent examples of such partnerships between global partners -- sorry, global players and local players, including ourselves. ,[indiscernible] explained earlier sessions. And in addition, Japanese incumbent life insurance companies have been recently increasing their interest in this market as well, such as Nippon Life and Deutsche Life. So this last page. So between base profit and capital gains, we aim to further grow base profits over the mid- to long term. And for the base profit, which is composed of asset-based income and fee income, we see that fee income will be the critical driving force here. Today, our fee income before S&GA, so it's basically the gross profit concept is JPY 474 billion. on the left bar chart, right? So -- and we envision that it grows more than double towards 2035. And if we go further detail, out of total JPY 474 billion of the fee income today, JPY 200 billion comes from traditional asset management business, mainly [ Robeco ]. And you saw it's a public equity and debt and JPY 40 billion comes from the private real assets that we have just talked about through -- or we have talked through in the sessions and the rest of JPY 230 billion comes from operations and others, as you know, in the -- I'm sorry, the page. And we expect the fee income from both traditional asset management as well as operations and others to grow at mid-single digits. While we envision the fee income from private asset to grow at a little bit ambitious, but the mid- to high double-digit for us to get to the ROE target of 15% by 2035. Okay. So it was relatively short to the compared to the previous sessions, but this concludes my presentation, and thank you for listening. [Break]

[Audio Gap] which is an interactive Q&A session. I'll let the executives sit down. Before I ask for the first question, it's a very simple disclaimer. It's July 2 obvious statements. So by definition, we're in a quiet period. So please, no questions that specifically refer to the most recent quarter's financials. Now who's going to ask the first question? Carl?

Yes, useful session. Thank you. Maybe just to kick things off with an easy question, and I'll leave the tough ones to others in the room. But we've heard a lot and we've been reading a lot about this transition in the business model and the changing way that you're looking to use your balance sheet and bring in third-party funds. Obviously, we're very supportive of that. Can you just talk us through maybe what are the barriers to execution? What are the remaining challenges, the bits of the jigsaw puzzle that you need to yet put in place to really bring that vision of the new ORIX, so to speak, to bring that to fruition.

Last year was the first year to execute our strategy, but we have already developed strategic strategy and it's only execution phase, wrong short, but and we are in the [ 3R ] stage, but I think we have steadily progressed well. And for example, portfolio optimization wise, good example is the sales of ORIX banks, and we have already implementing the portfolio optimization for other asset classes. And in terms of fundraising for asset management, QIA for private equity for the Japan and APAC business unit and variant or set force business unit. And as Terry said, that we recently made fast growth for NFC capital. So fundraising active activity is progressing well. And the challenging we have -- I have a strong leadership team to execute strategy going forward. But the challenging things going forward maybe we need to continuously keep a good talent to execute a long-term strategy because we need to execute that strategy in the next 9 years was that we continuously need to develop a good trend, and we need to continuously identify the goal might be challenging. But we have a good internal candidate, and we have good access to the market. So securing good talent and develop good talent and compensating fairway and see the same direction on the -- to be on the same board and to get there in 2025.

Thank you. Next question. David?

Thank you very much. This may be a question more for Masa. I mean if I look at ORIX's credit rating, it's lower than that of same Macquarie and some of those other peers, but your leverage is also lower. Why do you feel that is? And how can you change that?

Well, I think are, I guess, in terms of leverage, we are really running the company very low leverage, so really running the company really on a conservative basis. But yes, the reaging agency assigns BBB+ by S&P, A3 by Moody's cell split rating. And one of the reasons I think that I think rating agency has a little bit of concern around over its probably around complexity of the business, right? And it's hard to for -- at least for them to understand ORIX's complexity of the various businesses we have might be part of the reason. So I don't know -- I haven't really talked about with the S&P and Moody's direct yet. So hoping that we can actually clarify what exactly the concerns is, given my -- how low leverage we are.

I think one issue really is the difference between the principal capital you use and the fund level leverage. So at a fund level, it's obviously ring-fenced from ORIX Central capital for us at the moment, you borrow the center and you allocate out that would probably make a big difference.

Well, for the moment, I think corporate loan borrowing is actually really cheap given that megabands really provide us really very cheap funding. So there's a leverage, but I guess, cost of debt is pretty low.

So I think from a sort of a WACC perspective it probably isn't that cheap.

That might be.

Next question [ Jake Kapo ].

Thank you so much. You made up pretty incredible investment by taking Toshiba private with [ JIP ] 12 years ago, and it's becoming a significant part of your asset base. So it'd be interesting to know from you what the future plans are for that asset, if you plan eventually to monetize it and how you would redeploy the capital from such a massive and successful investment.

So first of all, a price of [indiscernible] up and down by 10% every day. So I'm not sure what is a fair value of them. And Second point is that we indirectly and effectively on the Toshiba JIP fund through GIP fund 60% -- I'm sorry, 40% and Toshiba owns 16% of our key of share. So we effectively directly on 2.25% of the [indiscernible] share and -- but we are the LP investor of our JIP funds. So we are not in a position to control and manage [indiscernible] asset and fourth Toshiba's management to sell. As long as I know, Toshiba deems shares investment, that's financial investment. So if you look back the activity since [indiscernible] IPO they used to own the 20% plus a [indiscernible]. But now they as long as you know, based on the public information, they own, again, 16% ownership [indiscernible] share. So I expect that Toshiba is deliver down is going to be triple down gradually, but I don't know the timing and speed of sell-down [indiscernible] share. In the meantime, as of March of fiscal yet. 2026 because Toshiba's ownership in [indiscernible] share went down of 20%. So Toshiba already changed the accounting treatment of [indiscernible] share securities from equity accounting method and recorded very big variation gain based on the closing price as of March 31 at around JPY 90,000 per share. And that million 2.25% of such a variation gain will come to our PM there at Q1 because we consolidated our portion of Toshiba's net pro 3 monthly basis. So if you look at the [ Cusi ] price at the end of June, the price was around JPY 90,000 per share. So we're going to consolidate contribute 2.25% over $90,000 per share basis in Q2. So it's going to be huge. But again, if you look at the chart of chats up and down every day. So -- and I don't know whether or not JIP partner is willing to pay a dividend business. So unless we get paid by dividend or price correction. It's really a paper again. So I continuously communicate with chip and Toshiba pushed them far as much as soon as possible. But again, unfortunately, I cannot control. But good thing is a good thing is that it's really good asset for us rather than [indiscernible] at the end was there, I think Toshiba is sitting down everything because if Toshiba go public again, the just 16% of bumping or asset, maybe the bottling goes in public. So I expect the grade sitting down at the end of the day, Toshiba pay dividend to fund and fund pay dividend to us.

Leo first and then Ed following.

I think my question is for Suzuki-san. So on the integration of U.S.A. and Europe, I guess how do you practically incentivize employees to collaborate it sounds very nice on paper, but in theory, how are you trying to incentivize like collaborating across not just other funds but also, of course, cross border?

Thank you for your question. Actually, the fundraising head, he is sitting over there. So I want to ask him to answer, but not today. actually, the -- we have the series of the meetings between ORIX Europe and ORIX USA in terms of the collaboration regarding fundraising or distribution. So first of all, we need to set -- to be honest, how we're going to share the fees or how we can allocate credit. Then secondly, what kind of expertise we need to place for the people actually visiting the investors are talking the investors, the key bars. And then also, we are thinking instead of just specifically focusing on the investor who is looking at only public or only fixed income. Rather, we need to go beyond them, who manage the entire diversified the capital allocation from equity, fixed income, private credit, private equity, real estate. So we need to recreate all the in the client base. Of course, we have already a strong relationship. But on top of that, we need to strategically build it up the further upgraded relationship with our target investors and the clients, which has been discussed, to be honest, this week, and then we had meetings this year and last year. So we have a series of meetings kind of strategy as well as sales team discussions. So again, Yes, we need to compensate the people. So the first, how to compensate. And then secondly, what kind of resources we need to deploy? And thirdly, what is the real target investors and then title or positions? Those understanding need to be discussed further, but we are working together already. And then as I said, the -- one of our clients, which is insurance companies -- so the public side and private side, we are working together what's the best portfolio for that specific companies, specific investors. So we keep the constant dialogue with many of the teams. Yes, from the beginning, I thought it's a public and private kind of a little bit difficult to manage all together in the totally different locations. But flip side is, there is no overlap. So it's more kind of room to corroborate and create further value going forward. Please give me maybe more time, I can show you the result.

Yes. My question is on your asset management business. And I know you've been -- you've made a number of acquisitions in building your asset management business. Do you still see any gaps in your asset management lineup? And how important is size in your asset management business? So should we expect to see more M&A in that area?

To Terry or CEOs?

Maybe the CEO...

I think CFO, Masa is a better portion to...