Thu, Aug 21, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

65.5% of Japanese pension funds invest in alternatives, particularly hedge funds

Thursday, December 05, 2013

Delegates at the Pensions & Investments-Nomura Securities global pension symposium heard from Japanese pension fund executives who came together in Tokyo with money managers and others to hear conceptual and practical ideas about different asset classes and techniques available for managing their funds in a very low-interest-rate environment, where rates are expected to rise and where the rules of modern portfolio theory might no longer apply.

Tomoyuki Teraguchi, senior managing director, head of the global research division and fiduciary service research center at Nomura Securities, Tokyo, set the scene for the Japanese pension fund universe, noting the funds are moving into a drawdown stage, where they will have less tolerance for asset volatility.

"The Japanese pension scheme is going through a transformation ... and being in a post-MPT world really does represent a regime change in pension investment going forward," Mr. Teraguchi said.

Throughout the conference, speakers presented examples of pension funds using alternative and illiquid investments, smart beta and other strategies to manage assets in light of the potential for rising interest rates and the risks from the future tapering of the quantitative easing programs from the U.S. Federal Reserve and from central banks around the world.

Kiyoshi Murase, president of Japan's Pension Fund Association, Tokyo, presented data showing that 65.5% of Japanese pension funds are investing in alternatives, particularly hedge funds, to help meet investment objectives of further diversification and the pursuit of absolute return, while also controlling market risks.

Hedge funds of funds dominate the alternative investment categories used by Japanese pension funds, accounting for 31.6% of alternatives, according to Mr. Murase's presentation. Single hedge funds account for another 25.4%; while managed commodities futures were 7%; private placement real estate investments, 6.3%; real estate investment trusts, 5%; private equity funds of funds, 4.1%; private equity single funds, 3%; and collateralized loan obligations and collateralized debt obligations combined, 2.4%. The remainder was attributed to other unidentified investments.

"Investment in alternative assets, particularly in hedge funds, has been increasing, as products suitable for (pension funds') investment objectives, such as further diversification through expansion of the investment scope, pursuit of the absolute return, and controlling the market risks," become more prevalent in the market, Mr. Murase's presentation stated.

Panelists from three Japanese corporate pension funds described their use of alternatives as part of efforts to diversify risk and stabilize returns, rather than increase returns, as the pension funds are reducing exposure to Japanese equities.

In 2012, Japanese pension funds cut their exposure to Japanese equities to 21.6%, from 25.1% a year earlier, while increasing Japanese bonds' share to 36.2% from 33.9%, according to Mr. Murase's presentation.

Among corporate funds, the shift away from Japanese equities is also dramatic. Domestic equities accounted for 15.6% of portfolios in 2012, down from 17.5% in 2011; while allocation to domestic bonds held at 35.8% in both years.

Despite the 60% rise in Japanese equities in the year since the election of Prime Minister Shinzo Abe and his efforts to stimulate the Japanese economy, many Japanese pension funds are reducing their equity exposure in an effort to reduce their portfolio volatility, several speakers said.

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Institutions – Texas Employees sets 2015 tactical plan for alternatives, CalPERS' real estate consultant cautions the pension fund's investment committee, Why Sunsuper likes hedge funds[more]

    Texas Employees sets 2015 tactical plan for alternatives From PIOnline.com: Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1. Trustees approved 2015 tactical investment plans for the hedge fund, private equity and in

  2. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  3. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  4. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde

  5. Investors now net short S&P500 and increased Russell shorts, technicals suggest further selling[more]

    Komfie Manalo, Opalesque Asia: Market Neutral funds increased their market exposure to -1% net short from -6% net short last week, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The report also added