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Mizuho Capital Partners Co. plans to make its first investment for a fund that invests in mezzanine securities by the end of September as it targets Japanese pension funds looking to boost returns.

Mizuho Capital, a unit of Mizuho Holdings Inc., started a ¥12.1 billion fund last month and aims to eventually raise as much as ¥30 billion, Managing Director Tadashi Miyazaki said. It’s currently looking at mezzanine debt by a sports-related company and a temporary staff service provider as potential investments, Miyazaki said, declining to name the firms.

The fund is Mizuho Capital’s second to invest in Japanese companies’ mezzanine debt, which is a type of leveraged loan repaid after senior loans in a default.

Mizuho Capital is seeking to attract companies looking for alternative financing as major banks face tougher regulations, while meeting increased demands by pensions handling about ¥60 trillion to diversify their investments for stable returns.

“This is our first attempt to tap Japanese pensions as we’re seeing increased demand from them for such funds that have relatively stable returns,” Miyazaki said in an interview in Tokyo on Tuesday. “There are plenty of Japanese companies that are cash-strapped, but with a little bit of help they can become potentially good investments.”

Mezzanine funds offer income gains through dividends and coupons, making them more attractive than private-equity or infrastructure funds that tend to take time before making a profit, Miyazaki said.

The fund is targeting domestic pensions, which have traditionally invested mainly in bonds and are now seeking other assets to maintain steady returns and fund retiree benefits.

In the U.S., the California Public Employees’ Retirement System has also invested in mezzanine funds to diversify, Miyazaki said.

For the investment side, the fund is seeking to fill the gap between Japanese companies and banks that are facing stricter regulatory oversight globally, Miyazaki said.

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