Japanese investors decode their global ambitions

In the days leading up to PERE’s annual conference in Tokyo in late September, the world’s largest pension fund, Japan’s Government Pension Investment Fund, ended months of anticipation by announcing CBRE Global Investment Partners as its first multi-manager for global real estate.

GPIF’s investment strategy is widely considered a benchmark for all other Japanese pension funds and institutional investors preparing to make a debut in alternative investments. Little surprise then that all eyes at the PERE Investor Forum were on Hideto Yamada, GPIF’s head of global real estate, who gave the opening keynote address to a room of over 270 delegates.

While the first stage of GPIF’s real estate investment strategy involves investing via multi-managers through a gatekeeper, the industry doyen spoke of plans to eventually consider co-investment structures as well as joint venture partnerships.

The ambitious push by GPIF and its peers into global alternative investments was the conference’s central theme. In a keynote interview, Tadasu Matsuo, head of alternative investments at Japan Post’s insurance arm, also spoke candidly about the insurer’s plans to deploy around $10 billion across different alternative asset classes over three years. Like GPIF, Japan Post Insurance will also initially work with gatekeepers to invest in fund structures, and then move on to direct investing.

Japanese investors have always been considered the “holy grail” in terms of the quantum of capital, as one speaker pointed out in a panel. Even then, both these investors and the global managers eyeing their capital are also aware of the list of challenges that need to be addressed. These relate to cultural and language differences, as well as recruitment of investment professionals and the pace of deployment.

Overcoming knowledge barriers is another challenge. As Koichiro Obu, director, head of research and strategy for Asia-Pacific alternatives at Deutsche Asset Management Japan pointed out, everyone in the US is aware of the Odyssey fund structures and what it means to track total returns. But it might not be the same for all Japanese investors, especially local pension funds that prefer investing in open-end structures.

“This might be common sense for US managers, but Japanese investors are not familiar dealing with these indices. They need to be given introductory lessons,” he noted.

Other managers also pointed out the relatively longer decision-making process at these Japanese institutions as being a potential deal-breaker.

“The internal processes can be so cumbersome at times that [Japanese investors’] capital becomes appropriate for funds and not co-investments, which are a faster-moving animal,” commented Richard Stacker, chief executive, industrial, at the Australian property group Charter Hall, adding that this sometimes leads to the Japanese investors losing out on some opportunities.

Morgan Laughlin, managing director, head of Japan, at the New Jersey-based investment manager PGIM Real Estate, said: “Five years ago, the questions and degree of details required by the Japanese investors in our core funds were something that our US portfolio managers found a bit annoying, to be honest, since the amount of money was small.” He added delays often occurred when translating documents to Japanese. “There is less need now to do the same degree of translation, but the same degree of information is still required.”

Learning fast

Indeed, several delegates believed many of these challenges would resolve over time, as these institutions become more savvy and experienced overseas investors.

Speaking on a panel on Japanese investor and international manager relationships, Shusaku Watanabe, director for capital transactions at the real estate investment manager TH Real Estate, said he is surprised to see how fast some groups are gaining market knowledge.

At the same time, these investors need to ramp up their internal capabilities further. GPIF currently has 15 people in its private market investment team and is actively hiring professionals, Yamada told the audience. The same was echoed by Japan Post’s Matsuo in a panel later, where he spoke about how the insurer plans to increase the employee headcount to 20 in a year or two.