Dai-ichi Life, one of Japan’s largest life insurance companies, is reportedly making its return to international property investment after a 26-year hiatus.
Starting from scratch, the insurance company is dipping its toe in overseas real estate, having initially earmarked ¥10 billion ($91.1 million; €76.7 million) to invest in funds of funds.
“I think the fund of funds route is one of the easiest ways for them to start investing, because they can rely on the expertise of fund of funds managers and make investments they could not necessarily do by themselves”
– Shinji Kawano
The initial allocation to international property is low relative to the overseas property portfolio of around ¥600 billion that it amassed in the 1980s. However, the comeback via multi-managers is significant for the Japanese investor market overall, as sources noted it will encourage peer investors to also make that first step.
While the re-entry of Japanese investors into overseas real estate is still in the early stages, multi-managers have already started to see a pickup in business.
“We have certainly been active in engaging with Japanese investors for outbound, as we have been for the past decade. We have seen a significant increase in interest and activity in outbound and have benefited from some of those flows,” said Graham Mackie, head of real estate Asia-Pacific at UBS Asset Management.
Dai-ichi Life, along with many of its Japanese corporate peers, shed its property holdings after Japan’s economic bubble burst in the 1990s, and huge losses linger long in the memory.
The catalyst for the resurgence of Japanese investors has been the introduction of negative interest rates by the Bank of Japan last February. Investing only in bonds will not satisfy their liability needs, so there has been an increase in allocations to alternative assets that generate current and stable income.
However, “Japanese people in nature are very cautious about investing in real estate, so they need people to support the investment,” explained Shinji Kawano, head of overseas property investment at Tokio Marine Asset Management. “I think the fund of funds route is one of the easiest ways for them to start investing, because they can rely on the expertise of fund of funds managers and make investments they could not necessarily do by themselves.”
And while fund of funds managers will be the first beneficiary of the return of Japanese investors, fundraising overall will eventually be bolstered.
On average, Japanese life insurance companies’ peak allocation to real estate in the 1980s was 6 percent, according to Yukihiko Ito, managing director at Tokyo-based advisory firm Asterisk Realty & Placement Agency, while today it is below 2 percent, with most of the property holdings in Japanese real estate.
“They’ll look to build that up again and 6 percent can be the benchmark, with more than half of that in overseas real estate. But, how quickly they can do this is uncertain,” said Ito.
For now, multi-managers are able to take advantage of old wounds healing slowly.