Mon, Aug 29, 2016
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. Strategies - The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I, Hedge funds get more pushback on terms as enthusiasm for strategy wanes[more]

    The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I From IBTImes.co.uk: To illustrate a strategic gap common to today's portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of

  2. Institutional investors - Investors set to increase allocation to private debt, With investment income key, Richmond retirement system faces funding challenges[more]

    Investors set to increase allocation to private debt Investors are set to increase their allocation to private debt, with 60% revealing they believe the private debt market will grow over the next 12 months, according to a new study by Elian, a leading funds services provider. 41%

  3. Investing - Hedge funds snap up banks, unload Apple, Some of hedge funds' favorite stocks are finally starting to beat the market, Einhorn's Greenlight shifts positions, Treasury yield climbs to two-month high as Fischer joins hawks, 9 stocks smart investors put their money in last quarter[more]

    Hedge funds snap up banks, unload Apple From Barrons.com: Prominent hedge funds have a newfound love of big banks, and some have a distaste for shares of Apple, regulatory filings released last week show. The filings suggest that the funds have been pivoting their portfolios in recent mon

  4. Chesapeake energy seeks $1 billion loan to refinance debt[more]

    From Bloomberg.com: Chesapeake Energy Corp. is seeking a $1 billion loan as the company battered by cratering fuel prices and credit downgrades takes a step to address its $9 billion debt load. The natural gas producer hired Goldman Sachs Group Inc., Citigroup Inc. and Mitsubishi UFJ Financial Group

  5. Institutions - Nordic pension funds magnify focus on unlisted and direct investing, building up teams[more]

    From IPE.com: As bond yields remain at low or negative levels, pension funds and other institutional investors in the Nordic region are stepping up efforts to find higher returns by adding more unlisted investments to portfolios and are expanding in-house teams in order to do this, according to new