UPDATE 1-Japan's MKS to sell stakes, stop investment -source

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By Junko Fujita

TOKYO, Nov 13 (Reuters) - MKS Partners Ltd, one of Japan's oldest private equity funds, will stop investing and sell its stakes in three unlisted firms due to the financial crisis, a person familiar with the fund said on Thursday.

While Japanese banks have proven relatively resilient to the the global credit crunch, MKS, like many of its peers, has been forced to cut back operations in a difficult investment climate where financing is hard to come by.

The firm, which manages 60 billion yen ($627.5 million) worth of funds, will allow about a year to sell its portfolio, the person said.

MKS has stakes in socks manufacturer Fukusuke Corp, household goods firm Kracie Holdings Ltd, formerly known as Kanebo, and Dowa Works, which makes newspaper folding machines.

MKS bought a stake in Kracie together with Unison Capital Inc and Advantage Partners LLC from a state-owned Japanese bailout firm in 2006. Kracie was spun off from Kanebo, a cosmetics maker, which had been bought by the bailout firm.

PRIVATE STRUGGLE

MKS' management declined to comment on the move.

The fund's rivals around the world are struggling to secure financing and boost returns on their investments as the credit crisis deepens. Many have seen their investments sour amidst the economic slowdown.

Outside Japan, there have been plenty of signs that trouble is brewing in the world of private equity, including the delay of the initial public offering planned by Kohlberg Kravis Roberts & Co [KKR.UL], one of the largest investment funds in the world.

Even in Japan, where interest rates are close to zero and banks have been less affected by the financial crisis than their overseas peers, acquisitions involving private equity firms fell to $8.9 billion in terms of value, down 50 percent from the same period last year, data compiled by Thomson Reuters showed.

Looking at the full year, private equity funds made $22.8 billion worth of acquisitions in Japan in 2007, according to Thomson Reuters.

MKS will cut its staff to about 10 from 15 by the beginning of next year. The remaining staff will work on the existing portfolio, including looking for buyers for the stakes, said the person, asking not to be identified because the process has not been completed.

MKS manages two funds, MKS I and Japan Fund IV. It was established in 1982 as a venture capital, according to its Web site. The firm conducted an management buyout from Schroders Plc (SDR.L) to become independent in 2002.

The firm is managed by Nobuo Matsuki, who started his career at a sales unit of Toyota Motor Corp (7203.T) and has studied at Northwestern University's business school, according to the fund's web site. (Editing by Sophie Hardach)