Anyone looking for evidence of Japanese institutional investors acting on talk about investing greater resources in real estate and overseas got some this week.
The open-ended global core property fund launched by Tokio Marine’s real estate investment management unit, Tokio Marine Property Investment Management (TMPIM), is something of a trailblazing by one of the country’s largest insurance businesses – as small as it is.
Just $50 million was raised for the vehicle at first closing: a combination of balance sheet capital from Tokio Marine subsidiary Tokio Marine Nichido Fire Insurance and capital from an unnamed but “large, well-established Japanese pension fund”. TMPIM expects the fund to grow to more than $200 million within two years but we’re not talking big money in this instance, particularly when you consider the firm manages $2.2 billion of real estate in Japan.
Still, toes in foreign waters of an insurance company and a pension fund nonetheless represent a (belated) willingness by Japanese investors to explore yield-enhancing assets beyond stocks and bonds and also beyond home shores. Even if, tellingly so, the pension fund in question here has opted to invest anonymously: a shift in mindset among Japanese investors is happening here.
One western fund manager told PERE this week he expected “a structural change over the next three to five years as asset allocation decisions are implemented”. The introduction of products like the Tokio Marine Global Core Property Fund this week could be a sign it might come sooner than that.
Through the new fund, Japanese investors should be able to gain exposure to mature property markets across the globe. Via an advisory mandate awarded to The Townsend Group, they will invest in core, open-ended funds in Europe (UK, Germany and France mainly), North America (US and Canada) and Asia (just Australia) and the Cleveland-based investment and advisory firm’s database has more than 700 funds to pick from. The vehicle is expected to generate returns of 6 percent to 8 percent a year.
Demonstrable success by TMPIM should likely lead to subsequent efforts, although unlikely from western managers in the beginning even if certain groups have recently opened rep offices in anticipation of fundraising hauls. They might have to wait. A local thoroughbred like Tokio Marine as the fiduciary gives a cultural comfort necessary today for Japanese investors to make commitments that an offshore manager cannot.
Indeed, getting over the ultra-conservatism that Japanese investors harbor these days sits at the centre of TMPIM’s thesis. Shinji Kawano, TMPIM’s head of overseas investment, inferred as much in its announcement on the fund. He said many investors, particularly pension funds, have historically expressed interest in investing in low-risk, non-domestic real estate so as to achieve diversification. But they had found it difficult to obtain either appropriate information or prospective opportunities and where they had they were then put off by the administrative and tax consequences that overseas investment brings.
As such Tokio Marine’s fund was designed to overcome these issues and provide those investors with “easy access to appropriate opportunities, but in an administrative friendly structure.”
That Japanese institutions should diversify away from domestic fixed-income assets requires little explanation. Bond yields have produced low returns for years and there are concerns that another re-pricing downward is on the horizon. There are few asset classes available that offer the defensive characteristics of an inflation hedge like real estate. Theoretically at least, many Japan’s investors recognize that.
But from the $1.35 trillion Government Pension Investment Fund, which at the turn of the year itself appointed advisors for an alternative assets investment strategy (including for real estate), to its far smaller counterparts, there is evidence to suggest country’s institutions are cranking into gear, even if at a predictably glacial pace. Those monitoring the country’s institutional capital for action now have some and can say that even glaciers move.