Japanese ‘big four’ pension issues first alternatives mandates

The Federation of National Public Service Personnel Mutual Aid Associations, one of Japan’s ‘big four’ pension funds, is preparing to invest for the first time in alternative asset classes, including real estate.

The institutional investor, which currently is responsible for approximately $65 billion, issued requests for proposals (RFPs) this month for external managers to provide it with investments opportunities in alternative assets.

In so doing it is following in the footsteps of its far bigger contemporary, the Government Pension Investment Fund (GPIF) which signaled its intent to invest in alternatives in 2014 and is currently hiring executives to carry out its strategy.

In its RFP, the investor, known in Japan as KKR, did not disclose what proportion of its assets would be dedicated to alternatives. However, it is thought it will try to emulate GPIF in proportioning up to 5 percent in the first instance. That would theoretically mean as much as $3.25 billion dedicated to alternatives investments.

According to Yukihiko Ito, managing director at Asterisk, a placement agent based in Tokyo, the signal by KKR to invest in alternatives was well anticipated and he expected the other two ‘big four’ pension managers to follow suit with similar directives shortly. These are the Pension Fund Association for Local Government Officials and the Promotion and Mutual Aid Corporation for the Private Schools of Japan.

Ito said: “During this year, we have seen significant changes in the consensus of Japanese institutional investors as they move towards overseas real estate investment, with particular interest in core strategy.”

“In terms of KKR`s next move, GPIF and KKR have the same portfolio allocation model, so we believe GPIF`s investment in overseas real estate will be a catalyst for KKR doing the same. This is one small step for KKR, but one giant step for Japanese public pensions.”

“We expect several big moves will be made next year by public pensions, and this will be an enormous trigger for Japanese investors.”